Goals, limits and feedback loops
Your first task now is to set yourself some goals: How much do you want to save or put into debt reduction, and what is your time frame?
Let’s look at an example. Supposing you save nothing at the moment, and want to have $6,000 in 30 months’ time. You’ll need to find savings of $200 a month ($200 x 30 = $6,000).
You’ll now have some milestones to measure your progress. After three months, you should have $600, after a year, $2,400 … and so on. Set aside an hour a month in your calendar to monitor your progress. As well as looking at your totals, check each line to see where you’re under- or overspending.
If you’re like most people, telling yourself you want to save $200 a month won’t be enough. So run through all your categories of spending line by line. You may be shocked by just how much some “little” luxuries are costing you.
Don’t feel you have to eliminate all your luxuries. Start by finding ways to cut down on things. How often do you watch premium cable TV channels? Is there a less comprehensive package that would serve you almost as well? Could you live with reading your favorite newspaper on a tablet or phone instead of buying a hard copy?
Would your marriage be as happy if you were to have two or three date nights a month rather than weekly ones? If you like swanky restaurants and have to pay a babysitter, that saving alone could see you reach your goal.
Of course, many need to save a lot more money in much less time. If that’s the case for you, you’ll have to make deeper cuts across the board. And some of those will likely be painful. Being able to make informed choices about where those cuts should be made can minimize that pain.
Feedback loops are the breakfast choice of champion accountants. Well, maybe not. But they are an important part of the budget process.
You’re already monitoring your progress each month to see how you’re getting on with your savings. A part of that is recognizing what’s going right and what’s going wrong. And a feedback loop lets you put what you learn to good use.
Suppose you originally resolved to stop making coffee shop purchases. You planned to drink office coffee only but just can’t stand it. That doesn’t make you a failure! Increase your coffee shop budget and find an equivalent saving somewhere else. Remember: you’re taking back control of your money, not ceding control to an app.
Too many people give up on their budgets because they fail to stick to them in every detail. When you find a spending limit impossible to keep, change it.
That cuts two ways: If you find you’re consistently spending less than your budget allows, cut your limit for that category. That might save you some pain elsewhere. Or, better yet, it could allow you to increase your saving goals.
The information contained on this website is for informational purposes only and is not an advertisement for products . The views and opinions expressed herein are those of the author and do not reflect the policy or position of Brokerage. Source: The Mortgage Reports