Budget Series - Pt 4: Moving Closer To Your Ideal Budget By Goal Setting

Goal setting is really helpful.  It helps you focus on what is important.  It gives you an incentive to stick with a plan.  When you use goal setting to move you closer to your ideal budget, the "reward" is more abstract and esoteric - knowing that you are closer to living without debt (yawn).  So, if that "reward" really is not enticing, feel free to give yourself a real (affordable) reward.  Make sure your reward is worth your while so that it keeps you motivated.  For me, I want a new digital dslr camera that has the video functionality.  Our camera right now does not.  We do have a video camera but it is so old that the battery will not hold a charge.  Now, that camera like that can cost anywhere from $500 to several thousands.  So, I dangle that in front of myself and say - you can get one BUT it cannot be more than $700.  Even that is a huge price tag.  So, I know I will be working very hard for the next year (or perhaps even two) to reach my goal.

You must be confused because I am starting off a section on goal setting to move you from your current pork-bellied spending to a trimmer budget encouraging you to buy something expensive.  It is because we are imperfect and weak.  If we continue to live in denial and set unrealistic goals and expectations, we will NEVER reach our goal.  So, take it easy on yourself.  Again, this is a process.  Now, if you will be content with a nice movie and a dinner as your reward, that is great.  Just pick a reward that you know will motivate you.

Now, looking at your existing pork-bellied budget, what expense are you trying to bring in line OR get rid of altogether?  When my husband and I married, he came into the marriage with several high balance credit card bills.  One of the reason for the high balance was that he had only been paying the minimum amount due or just above that amount.  That is what the credit card companies want you to do.  For them, the ideal customer is someone who is concerned about ruining his credit so will continue to pay the credit card bill, but, will only make the minimum payment.  That way, they can stretch out the repayment and make incredible profit on the interest that accrues on the balance.  Usually, the minimum payment amount does not even include all of the interest that has accrued that month.  Therefore, paying just the minimum payment will result in the interest being added to the balance and now you are paying interest on interest.  Even if you cannot pay off the credit card, it should be your top priority that your payment be at least more than the interest that has accrued that month. 

Once we paid off the credit cards, our next goal was to pay down our school loan.  I was not interested in totally paying off the school loan debt because I could still tax plan and get our adjusted gross income down to a point where we could still deduct our student loan interest.   However, our student loan debt was so large that the total interest we were paying on the loans were greater than what we could deduct.  Since we were paying interest that we could not deduct, it made sense for us to get rid of as much debt as needed to get rid of that portion of the interest.

So, set your goal(s).  What is the first thing you are going to pay off.   Or, what thing do you anticipate needing in the future?  Perhaps a car?  Then, as you begin to trim down your expenses, allocate the freed up funds to a car budget IMMEDIATELY.  If you do not allocate the freed up funds you will spend it.

Now that you have created a plan, the next part of the Budget Series (part 5) will discuss how to get to your goal SOONER.  If any part of what I discussed is unclear, please send me a question so that I can clarify.