The steps to successful budgeting are pretty simple.
- Decide to follow a budget
- List your goals for budgeting
- Track current spending
- Make a plan
- Set up your budget
- Follow the plan/budget
- Achieve your goals
You’re tracking your spending. You notice that you spend a bit more money than you thought on some things and not quite enough on others. So you make a plan.
If you haven’t already, list your goals. Do you want to…
- get out of debt?
- set up an emergency fund?
- pay off credit cards?
- save a certain amount for Christmas gifts?
- plan a dream vacation?
- buy a new car?
- save for retirement?
- send your child to private school?
It’s possible to have numerous goals. Decide and prioritize which goals are most important.
Prioritizing
The first priority should be savings. Pay your savings account first. Chances are, no matter what you’re saving for, you’ll need to sock away a little at a time toward meeting goals.
Experts like Dave Ramsey advise that having an emergency fund on standby should have top priority. I agree. When an unexpected emergency arises, other debt payments may be neglected. Then the savings account is depleted. An emergency fund for sudden expenses (i.e. your refrigerator stops working and you need a new one) will help soften the blow and keep from derailing your financial stability.
Your fund should be at least $1000. After debts are eliminated, it is advised to build your fund to cover at least six months worth of wages. If your paychecks add up to $5000 per month, work toward a $30,000 emergency fund.
Why so much?
What if…
- something happens to your job?
- they are downsizing and lay you off?
- they sell the company and the new owners bring their own people, letting you go?
- you get hurt off the job and are unable to work?
- there’s another pandemic and the business is closed?
There are at least a dozen scenarios that all result in no income. Building a six month or one year fund will help see you through tough times.
Mind you, that means you have already saved at least $1000 for emergencies, paid off credit cards, and eliminated debt. We’ll talk more about paying down cards and debt elimination a little later.
How to
Make your plan. The key here is that it’s doable in your household. It should be stringent enough to reach your goals, but flexible enough to withstand the added stress of emergencies. Priorities change.
- DO stick as closely as you can to your plan.
- DO make changes if necessary.
- DO plan for emergencies.
- DO reward yourself when you meet a goal.
- DON’T devise a plan so stringent that you are unable to follow through.
- DON’T stress if you have to make changes.
- DON’T be embarrassed or afraid to ask for advice.
Take action!
Decide which goals have the highest priority in your situation. Make your plan. Keep tracking and posting expenses by category.
Have a great day!