Budgeting

Goal Setting

         A SMART goal is one that is Specific, Measureable, Attainable, Relevant, and Time-bound.  Wikipedia has a thorough SMART goal description. 

        You determine what is relevant (meaningful, important) to you, and a financial goal is attainable if you are able to plan in your budget the necessary amount to set aside each month (or each pay day).  For example if you want to accumulate $1,200 in six months for a short-term emergency fund, then your goal is specific, measureable, and time-bound.  In this case you would set aside $200 per month toward your goal. 

        If you cannot set aside $200 per month, then that goal is not attainable, and you would either lower the goal or lengthen the time frame to achieve it.  For example, you might set aside $100 per month for 6 months to reach a lower goal of $600, or you might maintain the goal of $1,200 and set aside either $100 per month for 12 months or $50 per month for 24 months. 

       The Apprisen Savings Goals Worksheet will help you to think through the process.

The Budget 

        A spending plan – or budget – is a powerful tool that many people use for taking and maintaining control of their money. It can help you identify and direct money toward the achievement of your goals. Just as financial SMART goals are based on individual needs, wants and circumstances, no two people or households will have identical budgets. Spending plans guide decisions, and they should be flexible enough to accommodate changing circumstances throughout our lives. If you are committed to using your spending plan as a tool for achieving your goals, you are more likely to achieve them.  Every household member who earns money or spends it should be involved in the entire process. 

        Some experts suggest that you track expenses for a period of three consecutive months.  I’d say put your heart into for at least one month - track accurately and thoroughly – and you may very well have an eye-opening experience and be excited to continue.  But if the thought of continuing for another seems exhausting or overly burdensome to you, there is no reason why you can’t do it again in three or six months and check if you’re still on track.  

     The FDIC has a Daily Spending Diary, and GreenPath has a short YouTube video, 5 Steps to Better Track your Expenses.

Directions 

        Review your spending records and your financial goals, and preview the checklist below.  If you plan to have your work reviewed by a counselor or instructor, you should include both a detailed budget and a written summary of relevant information.  For example, the budget summary should include information such as the number of adults and children in the household, whether the children are school age, the number and ages of cars, and mention of any other circumstances that affect either income or expenses.  Also include an explanation of how the spending plan supports each of your personal financial goals.

        Since there are 52 weeks per year rather than 48, any income or expense that occurs weekly is to be multiplied by 4.3 (rather than just 4) to arrive at the monthly estimate.  For example, a car payment of $100 per week would amount to about $430 per month.

        For income, use such as child support only if it’s regularly received, and do not count on such as a holiday bonus or tax refund, even if you’ve received a large one every year in the past.

        In every budget, income should equal expenses, that is, there should be no surplus or deficit.

        If your first budget does end up showing a deficit, then plan in detail how you intend to balance it. If you carry credit card debt from month to month, include your plan for paying it off.  If you are in school now and graduating soon, you should also plan for repayment of student loan debt, if any.

        If you show a surplus, designate it to retirement savings, new clothes, your next car, or a family vacation - whatever provides you with the greatest satisfaction.

        In your budget, plan for every predictable expense such as car and home maintenance, license plates, Christmas and wedding gifts and related events.  Apprisen's Periodic Expenses worksheet explains how to save for these.

      Unless you have already built a substantial emergency fund, then your budget should also include a fixed monthly contribution for that purpose.  An emergency fund is not to be used for predictable expenses such as new tires; it's for unforeseeable events such as a car insurance deductible following an accident.  Do not rely on credit cards or other borrowing for emergencies.

Emergency Savings 

        For many years the standard advice has been to build an emergency fund to cover three to six months of expenses. Considering the high levels of unemployment and underemployment during recent years, a goal of six to 12 months is not unreasonable. 

        Nevertheless, for many Americans living paycheck to paycheck a goal of even three months may seem unreachable, so just start where you are.  A first goal might be $500 if you rent your housing and use public transportation, or $1,000 or so if you’re a homeowner.  When you reach that first goal, then set the next one. 

        What’s important is to start saving now, a specified amount on a regular basis, even if it’s only a few dollars per paycheck.

Checklist:

• Your spending plan reflects how money has been spent over the four (or more) weeks that you tracked your expenses.
• Spending includes savings (pay yourself first).
• Expenses are listed in appropriate categories: fixed, flexible or occasional/periodic.
• Spending plan is balanced so that total income equals total expenses.
• Spending plan contains realistic data for your current and near-future circumstances.
• Your spending plan supports each of your personal financial SMART goals.

Additional Resources:

• Federal Trade Commission “Choosing a Credit Counselor” (PDF)
• Consumer Financial Protection Bureau “Choosing a financial professional” (PDF)
• Apprisen “Periodic Expenses” (PDF). This is a worksheet to help plan for expenses that occur on a regular basis but not every month (such as car insurance once every six months) and for those that are likely to occur occasionally (such as snow removal).
• Securities and Exchange Commission (SEC) “Saving and Investing for Students”.

Updated June 13, 2017