Reaching Your 2021 Goals Through Budgeting: Action Plan
Your budget is your spending and saving plan. Budgeting helps you to understand what is essential in your life, what you want to own, how you want to live, what it takes to do that, and, more importantly, what you want to achieve in life.
STEP 1: Set Financial Goals
Take action to set financial goals before establishing your budget. Long-term goals are financial goals or objectives that an individual or family wants to achieve, preferably more than five years in the future. These priorities include guidance for financial planning and short-term budgeting. These goals should comprise of dollar-amount objectives and exact achievement dates. Intermediate-term goals are financial objectives that can be accomplished from one to five years. The establishment of an emergency fund amounting to three to six months of income within five years is an example of an intermediate-term goal. Short-term goals are financial goals or objectives created in less than a year, for example, increasing savings, debt reduction, and annual vacation. Be as straightforward as possible about what your financial goals are.
STEP 2: Make Budget Estimates
Budget estimates are the anticipated dollar amounts in a budget you plan to earn or spend in the budget period. It is essential to make reasonable budget estimates. Estimate cost of $140 a month if you want to go out to dinner once a week with a friend at $35 per meal. By merely being fair and honest in your estimations, you avoid unrealistically low estimates.
STEP 3: Plan Cash Flow
Plan where your money will go before the month starts. Income usually remains relatively stable month after month; however, expenses often rise and fall. This challenge can be anticipated by evaluating your budget estimates and cash flow, in addition to using a revolving savings fund. Effective cash management may include reducing expenses during months with financial deficits, increasing income, using savings or borrowing. If you borrow money and pay finance charges, the credit costs will further increase your monthly expenses. For this reason alone, it is keen to “borrow from yourself” by using a revolving savings fund. For two reasons, you are creating a revolving savings fund: (1) to raise funds for significant irregular expenditures, for example, vehicle repairs, and (2) to cover periodic deficiencies due to variances in income.
STEP 4: Control Spending
Budget controls are planned spending techniques to maintain control over personal spending so that planned amounts are not exceeded. They provide guidance on whether spending is on track and detail excess expenditures, mistakes, emergencies, and exceptions. Examples of budget controls include monitoring what you spend, budgeting for shopping trips, tracking credit card purchases, and monitoring overspending.
STEP 5: Review of Budget and Update
Compare real expenditures and budget estimates, determine whether your goals have been reached, and assess the overall process's effectiveness and the progress you have made towards your short and long-term goals. Overages on a few expenditures may cause little concern. If large overages have kept you from achieving your goals or managing your budget, then take action. If appropriate, institute spending limitations or tighten current controls.
Whatever your goals, as you make progress towards them, it feels fantastic, and it is exciting to achieve them. If you do not reach some of your goals, you can appropriately determine why and adjust your budget and plan. It is alright to revise your strategy.