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You’ve heard the same thing a thousand times from countless financial professionals. You need to create and stick to a budget if you want to get ahead of the game with your cash. However, not everyone finds budgeting as simple as some people do.
While there are people out there that have already made a habit of tracking every penny they spend, there are also plenty of us that find ourselves easily getting tempted at the checkout counter in the supermarket or forgetting to count the pennies when we’re out with friends on the weekend.
If you’ve struggled with budgeting up until now, then a good goal or even a set of goals could help you to stay focused.
Why Every Budget Needs a Goal
Sometimes, the goal of having more control over your money will be enough to keep you motivated when you’re struggling with your cash. However, for most people, it’s easier to stay focused if they have something specific to look forward to.
For instance, if you know that you can’t afford to go out drinking with your friends every weekend, you can start to resent your budget.
However, if you remind yourself that every penny you save is going to go towards an incredible family holiday with your loved ones, then it’s easier to stay strong.
Some people even have multiple goals to keep them focused. Some of those goals focus specifically on the next year or two, while others are intended for the long-term.
For instance, your short-term goal might be to go on holiday to your favourite city, but your long term target could be to end up buying a house there when you retire.
How to Use a Goal-Oriented Budget
Fortunately, setting up a budget that’s driven by goals is easier than you’d think. It all starts the same way as using a reasonable budget.
You’ll add up your monthly income, including anything that you earn outside of your job, like commissions, or money from things that you sell on eBay. If you get any credits from the council in the form of child tax credits, remember to consider those too.
Once you’ve got your incoming expenses under wraps, start identifying your necessary expenses. These are the things that you have to pay for. For instance, if you’ve taken out a loan, then you’re going to need to make those repayments every month, no matter what.
You’ll also have costs like housing and council tax to think about mobile phone bills, insurance, food shopping and so on.
Savings for emergencies are part of your “must-have” expenses, so make sure that you don’t overlook them. Only after you’ve covered everything you have to buy should you start looking at how much money you have to spend on the things that you don’t necessarily need.
These are otherwise known as discretionary expenses, and they include things like movies, eating out at restaurants, paying for Netflix, and so on.
Adjusting your Budget to Suit your Goals
With your basic budget laid out in front of you, the easiest option is to use a variation of the 50/30/20 budget to keep you focused. This allows you to spend 50% of the income that you earn on your bills and must-have expenses, 30% on your wants, and 20% on savings.
However, if you talk your situation through with your partner and decide that your savings are more important than your personal “wants,” you can always switch the last two categories around. Spend 30% of your income on savings and only leave another 20% behind for those items that you just “want.”
Once you and anyone you’re living with is aligned towards the goals that you want to accomplish, then you can start to put steps in place to keep you focused on your goal. For instance, you can:
- Track the steps you’re making towards your target with milestones: Remember to celebrate when you reach big moments, like getting halfway towards the cost of your holiday. Just don’t spend money to celebrate – have fun for free instead.
- Keep an eye on your budget: Regularly check on your budgeting strategy and make sure that there isn’t anything you could do differently to help you reach your goals faster. For instance, could you switch your credit card bills out for a single personal consolidation loan?
- Adjust whenever needed: Remember to make changes to your budget as your life and situation changes. For instance, if you get a promotion and start earning more money, you can generally put more away in your savings each month.
Make sure you have a reminder of your goals around at all times too – such as a picture in your wallet. This will stop you from losing focus.
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