Knowing how to create a budget plan is integral to paying your bills, reducing debt, building credit and achieving your future goals. Working with a budget gives you the power to look at your reality and make decisions. With using a budget, we stumble from paycheck to paycheck losing the opportunity to control your destiny and your future.
Knowing how to create a budget plan helps you in seven ways, to:
- Create a sound financial foundation for the present;
- Fashion a realistic basis for current and future financial planning;
- Allows you to pinpoint areas of overspending and downright waste;
- Helps you get spending under control;
- Lets you to put money to better use;
- Helps you focus on areas where you need to put more dollars;
- Forces you to make informed decisions about spending, debt repayment and achieving long-term goals
Your Financial Goals?
There’s an old saying that when we fail to plan, we are planning to fail. When it comes to finances, by failing to plan, you will not necessarily fail financially, but if you do in fact plan your finances and plan them well, you can probably achieve many if not all of your goals in the future–perhaps a lot more quickly than you expect right now.
Planning and budgeting helps you allocate dollars where you need to put them to help achieve your goals. For example, if you are young and have a very strong desire to retire and be out of the workforce by age 49, simply desiring or longing for that result won’t get you there. But saving X dollars annually and investing those dollars wisely through a smart investment adviser will put you strongly in the direction of those goals. It goes with another saying: Plan your work and work your plan.
Your goals can be stretch-goals,but they must be based on realistic financial facts. If you want to retire at 49 and are making only a middle-income wage and have three children who will need go to college, your goal of retirement by 49 may not be a realistic one–unless you are expecting a cash windfall or a fabulous promotion at work that will put you in a whole other financial category.
Creating Short- and Long-Term Goals
The critical factor when creating a budget and setting long-term goals that you want to achieve is to include other family members and their short- and long-term goals into the plan as well. Otherwise, it probably won’t work because you are both working at cross purposes.
When planning your goals along with your family, create short-term goals and long-term goals.
Short-term goals. These are the goals that you would like to achieve in the next year or so, such as pay down that ugly, high credit card debt or paint the house.
Long-term goals. Those long-term goals are goals that you want to achieve over time that will usually require considerable financial resources, such as buying a house, saving for the children’s college education or retiring at age 49.
Making Necessary Choices
Naturally, by creating a budget with short-term and long-term goals in mind, it helps you to make the hard choices that you need to make to achieve those goals.
For example, if you want to save for a down payment on a house, you need to set aside a certain portion of money each month. If you also like to dine out at expensive restaurants and take expensive vacations, budgeting and financial planning allows you to make the hard choices you need to. That’s why it is so important to create mutually agreeable goals with other family members.
If you have your heart set on saving money for a down payment on a house and your significant other is interesting in dining out at expensive restaurants and taking expensive vacations, a compromise may be in order. Rather than putting all of the money away for the house down payment over the next four years, perhaps you should consider putting the money away over six years so that you can also include a certain level of fine dining and vacations in the plans to keep both you and your significant other happy. It is all up to you–but when you have a budget and a plan, you and other family members get to make the tough decisions.