Aug 8th, 2008
Basics: Your Goal Budget
Since we’ve established a baseline budget, it’s time to come up with some goals for your budget. A goal budget is what you would like to be spending each month. Typically, when a baseline budget is established, we see some surprising numbers. For instance, when I did a baseline budget years ago, I discovered I was spending $50 a month on soda rather than the $30 a month I expected. While $20 a month isn’t a significant amount, spending 67% more than I believed I was in any category tells you that your perceived budget is not as near to reality as you need it.
These types of expenses–the ones where you are spending more than you thought you were–are the best ones to target for early success with your goal budget. See what you can do to reduce spending in that area. If I’m spending $50 where I thought I was spending $30, I may target $40 a month as an initial target. Something helpful in terms of this type of budgeting is that if you thought you were spending less, you probably can at least approach what you thought you were spending.
It is, however, important that you create goals not just for these categories but all categories. In some cases you may even expand the budget if you believe that you are not spending enough in an important category (for example, I may decide that because I’ve been eating out more than seems to be financially responsible, I’ll increase my grocery budget). No matter what, do not make your total expenditures more than your net income! This is definitely a way to get into debt (or get deeper into it!).
Once you’ve completed your goal budget, remember that’s exactly what it is: a goal. Work toward it, but remember that no one is perfect. If your goal needs adjusting, adjust it, but make efforts to acheive it. Also remember that just like many other things we discuss (like a spending log), a goal budget is a tool, and what you’ll need more than anything else is discipline, discipline, discipline!
When we look again at Basics, we’ll see what to do after we’ve grappled with a goal budget for awhile.
