Hopefully my post yesterday inspired you to look at financial planning in a different light and helped you focus on what proper planning can do for you. I wanted to follow up with four practical steps to help you find balance in spending and saving your money.
In order to make sure you make the most of your money, you need to identify what you want to achieve. These goals should be short-term (under a year), medium-term (between one year and five years), and long-term (more than five years).
Your goals should focus on whatever you desire. Do you want to pay off your student loans? Get out of credit card debt? Spend a week in Hawaii with your spouse? Don’t limit yourself. Once you have identified those things most important to you, specify, in detail, how you can achieve those goals.
For example, rather than saying, “I want to save enough money to go to Germany next summer,” you should say, “I want to save $2500 for a 10-day trip to Germany 18 months from now.” Yes, you will have to figure out how much it costs to fly there, stay in a hotel in the cities you want to visit, and estimate how much food will cost. But having specific numbers and time frames will help you prioritize your goals (surely you have more than one) and give you a definitive plan of action for meeting them.
Here are some examples of good short-, medium -, and long-term financial goals.
- Short-term– pay down $3500 on my credit card balance with the highest interest rate within the next year.
- Medium-term – save $20,000 for a down payment on a house that I want to buy four years from now.
- Long-term – save $50,000 for my newborn’s college education by her 18th birthday.
Make sure to revise and update your goals periodically as you monitor your progress.
Focus on experiences
As I said yesterday, my indulgences with my money go more towards experiences rather than things. I first read about this idea from a 2010 study that showed that people get more fulfillment out of buying experiences rather than material objects.
When I began to implement that mindset into my life, I realized how right that study was. So now I focus on experiences like dinner out with Ben, vacations with my family, or watching movies with friends. Keep in mind you don’t have to spend a lot on your experiences; the point is to feel that the experience outweighs the money that you spent.
Budget for these goals
Once you have chosen the correct goals for yourself, you have to start putting your plan into action. That means creating a budget that accounts for the money needed for your goals. For instance, if you know you want to save $2500 for a trip to Germany in 18 months, you have to save on average $139/mo. If you can’t find that money in your current budget, you will have to cut from other areas or rethink the time frame you would like to achieve that goal.
Again, you need concrete numbers. These figures will provide the basis for taking your first steps in making your goals a reality.
Share your goals
I’ve said it before, and I’ll say it again: you should talk about your personal finances with your spouse, family, and friends, especially when it comes to goal setting. Having a spouse or friend hold you accountable for achieving your goals will keep you motivated and give the extra incentive to do what you have promised.
Make sure to use these steps as the starting point for your financial plan. Having your goals and a specified path to achieve them should give you the motivation to make the most out of your money.