Budget is almost a four letter word, it’s like the word diet.
But just like the word diet, budget is sadly misunderstood. You already have a budget and yes you are “on” a diet. Diet is just the word to describe what you eat, and budget is just a word for where your money goes. You may not write it down, you may not know where it all goes, but you live on a budget.
A budget can be a field you play in (but you don’t go anywhere!) or a budget can be the money road map to take you to your financial goals.
To hit your financial goals you are going to need a solid, real life, actually followed budget. (*shudders*) But before we can get to that you have to do two things:
- What is already going on each month?
- Figure out precisely how much your family brings in each month, figure out how much your constant bills are each month. (rent, insurance, phones, internet, car payments, student loans: these are bills that are the same month to month).
- Now find the average of your food and utilities. This can be done by looking back over your past month or two of bank account statements. You can download this free excel budget spreadsheet Military to Million complete budget to get you going.
- What is your Overall Money Goal?
- Until you know the direction you want to go, there isn’t any point in making this budget (road map) to get there. It will just be a record of where money is going, but not a tool to help you.
- This worksheet will help: Financial Goals.
Once these two things are done we can make the roadmap to connect the two. That is, a plan to make what you are doing to take you where you are wanting to go.
Work backward from your Money Goal
No matter how overwhelming you feel your overall money goal is, think about how you can get closer to that goal! You will make your roadmap (aka your budget) and direct each money decision with that goal in mind. Start brainstorming now!
Work backward from your goal:
Your goal is a date or event
Your goal is an amount
|How long do you have until this happens?||How much income do you have over your constant bills, food, and utilities?|
|How much do you need?||Multiply that by 12.|
|Divide how much by how many years, then again by 12.||That is how much per year you *could* invest towards your goal.|
|That number is how much you need to save or invest per month to reach your goal.||How long would it take you to reach your goal?|
Where is the disconnect? Think of steps you can take now.
- Do you need to do an analysis to figure out where your money is going
- Do you need to figure out where you can cut back?
- Do you need to open an IRA for Retirement?
- Do you need to sell “toys” you have payments on?
- Do you need to find a way to bring more income into the household?
Think of your budget as a road map!
Each month make your budget with the thought that it’s a roadmap to your financial goal. Evey line in your budget will take you closer or farther from your destination.