Have you ever said to yourself, “Where did all my money go?” Most people underestimate their spending by about twenty percent. The average millennial spends about $3,500 a year on coffee. That is more than they are putting into their retirement plans! Setting financial goals and having a household budget are core life skills.
Our financial goals should be specific, measurable, achievable, relevant, and time-specific. A short-term goal may be to have your own apartment or enough money to cover holiday gifts. A long-term goal would be retirement or a new house. Picture it and give yourself something to look forward to, keeping in mind that your goals may change over time.
Creating a budget
To create a budget, start by tracking your spending. Get a receipt every time you make any kind of purchase. Write on the receipt what you paid for – groceries, household supplies, haircut, etc. Put the receipts in an envelope for one month. At the end of the month, tally what you spent. Do this again for another month. This will help you see the big picture in terms of where your money is going. Things will become very clear and give you the ability to make adjustments to reach your goals.
Being on a budget doesn’t mean taking all of the fun out of life. If your budget is too strict, it probably won’t work. Remember that you established a budget because you want to reach certain goals.
Putting what you’ve learned to work
After you have tracked your spending for a couple of months, find ways to reduce expenses. Use the savings to establish or increase your emergency savings account. Ideally, you would have 3-6 months of bringing home pay (net income) in emergency savings. Without an emergency fund, you will always fall back on borrowing and will always be in debt. Once this is established, start working toward other goals. How much do you plan to spend on holidays, birthdays, and vacations? Establish the amount, stick to it, divide by 12, and put those funds away each month.
Finally, take advantage of an employer match to your company-sponsored retirement plan if one is offered. The employer match is free money! Start small. Gradually increase the percentage to the maximum allowed.
A great money mantra is, “The amount of time you spend managing your money is just as important as the time you spend making it.”
Chestnut Credit Counseling Services (CCCS) helps individuals and families with financial problems by analyzing personal finances and assisting with financial planning, money management, and planned debt repayment. CCCS is not-for-profit and is affiliated with the National Foundation for Credit Counseling (NFCC). To make an appointment, please call 800.615.3022.