We all have things that we want to buy, whether new athletic shoes, a new gadget, or going on a trip. But it would be best if you had a plan on how to pay for those things to make it happen. Preparing a budget is an effective way to help cross things off your needs and wants list. Let’s talk about how to plan a budget to get you closer to reaching your short term financial goals that involve things on your wishlist.
What Are Short Term Financial Goals?
Short-term goals are those that you have more of an immediate expense. These timelines may vary, but generally, these are things that will take a few months or years to achieve. Most of your wishlist items will go into this type of goal.
Setting financial goals for even the short-term is a valuable habit to have. When you set a goal, you are looking ahead with a concept of what that money will be used for. Putting a plan that’s in motion establishes the habit of saving and reaching their goal.
Here is a six-step approach for setting a financial goal that can be used for purchasing a new laptop or a new home below:
- Decide what the goal is that you want to achieve. Is getting the latest and greatest new smartphone more important to you right now over a new lightweight laptop? Figure out what matters to you the most at this moment.
- Is this goal realistic for you to accomplish, given your timeframe? For example, if that new smartphone is $1200 and you want it in four months but can’t save the $300/month to get it. You’ll probably need to add some more time to reach your goal or look for other expenses you could cut temporarily to get to that savings.
- Use the SMART goal strategy. That is:
- Specific – Be as specific as possible as identifying your goal. In the example above, this would be something like, “I want to save enough money to purchase the $1,200 iPhone in four months. I will do this by saving $300 of my income for the next four months.
- Measurable – This means your goals include a unit of measure in your goal. It’s the objective, not subjective meaning that answers the questions “When will your goal be achieved” and “How do you know you’ve achieved it?”
- Achievable – Again, this comes back to whether your goal is realistic or not. Your goal should be feasible, given the resources that you have available.
- Realistic – Your results should be your focus here. You’ll be setting yourself up for failure if you aren’t reasonable.
- Time-bound – You must have a deadline. Give yourself a specific week, month, year, or when possible, a date to reach our goal.
- Create a budget that fits into reality. Get a good picture of the ins and outs of your cash flow. You need to know what to expect when it comes to having the funds to pay for the goal you want to achieve.
- Use leftover dollars towards other savings goals. Hopefully, you will have some money left over to put into a separate account or used to pay down debt. A little bit can go a long way, so it doesn’t matter if it’s only $50. That adds up over time to a substantial dent into a loan or credit card.
- Keep track of how you’re doing. It would be best if you had a pulse on how you’re doing to make sure you’re hitting benchmarks that will lead you to the right place.
How to Handle a Holiday Budget?
During the holiday season, it’s common for people to end up spending more than they were initially planning on. When setting up a holiday budget, the first thing you should do is to set up a spending limit.
It would be best if you only spent as much as available cash and savings you have. Be sure to list out every expense you will incur, not just gifts. Think about wrapping paper, trimming, cards, postage, food for dinners, decorations, etc. It’s a common mistake for people to leave out these types of expenses when putting together their holiday budget. And these costs add up to significant amounts without a second thought.
Your Budget Checklist
Crossing off that shopping wishlist item and making it a reality feels like achieving a dream. It’s completely possible with the right mentality and a budget checklist. When preparing a budget, be sure to add in your wishlist item, so you’re allotting part of your monthly income towards it.
Even if you’re planning to purchase something for one of your inexpensive hobbies like collecting sports cards, it’s important to account for these types of things. These costs often add up over time. Decide on how much time you want to give yourself to save enough money for your shopping wishlist.
How to Plan a Budget That Works?
There are plenty of budgets out there that can help you save money and fund your inexpensive hobbies or that luxury SUV you want in a few years. The trick is to find a budget that works for you. Some budgets require detailed tracking and setting a set amount toward each spending category. Others aren’t as detailed and are set up to allow for more flexibility naturally. Here are some types of budgets that you might want to consider when looking for one that fits your lifestyle:
- 50-30-20 Budget Rule – This system takes your post-tax income and splits it into three different buckets: 50% needs (non-negotiable spending), 30% wants (i.e., going out to the movies, your wishlist item), 20% saving (retirement, emergency fund)
- Envelope System – The envelope budget method is an old school but effective approach of using cash for all your expenses. Break out all your monthly expenses (cell phone, rent, eating out, gas, etc.). Now grab an envelope and assign it to each spending category. Once you’ve run out of cash in a certain envelope, you aren’t allowed to spend anymore.
- 60% Solution – Here’s another simple budgeting rule that takes 60% of your income towards your committed expenses (food, clothing, household expenses, etc.), and the other 40% goes towards four saving buckets (retirement, long-term savings, short-term savings, and fun money)
- Zero-Based Budget – Every cent of your income is allocated towards something until you have nothing left. Your expenses, saving, and investing for each month is all assigned. This budget works similarly to how a business operates, almost like a personal accounting balance sheet.
- Line-item Budget – This is what you would think of as the “typical” budget. It’s similar to business accounting in how businesses use line-item budgeting to track their expenses. Basically, you list out each expense or category over a certain period. You review the current expenses against past ones to make sure you’re tracking appropriately.
Your Wants List
Here’s a little trick to get a little more control of those spontaneous spending impulses you have. Cutting down the wants on your needs and wants list will save you money to put towards beneficial savings goals like starting an emergency.
This psychological trick is straightforward and requires you to use a notebook. You might prefer using an app like Evernote, which is fine. Every time you find yourself wanting something bad that you’re considering buying it, add the item to your “Wishlist” note.
Write a short description and where to find the item (or website link). Keep a running tab of these items on your list. Review your wishlist once a month to determine if you still want it. The interesting thing is that the act of writing it down makes you feel like you’ve “taken action,” and that desire to want it diminishes substantially.
Try Budget Tracker Apps
Take advantage of technology and use an app to help track your finances. There are budget tracker apps based on budgets like the envelope system to go completely paperless. Many will even sync up with your bank to have a clear picture of your finances at all times. Need a few suggestions? Here are a few to look at:
- Mint – Arguably the most well-known budgeting apps out there is Mint. And for a good reason, it categorizes your transactions, automatically updated, and puts everything into a picture frame for you in real-time.
- PocketGuard – Want to know how much money you have to spend? PocketGuard will crunch the numbers to tell you what you have after paying your bills, spending, and savings goal allocations.
- Goodbudget – If you plan to use the envelope budgeting system, this is the app for you. It allows you to allocate your monthly income into spending categories. Plus, you can share your account across multiple devices. That means everyone in the family can get on the budget train.
Personal Capital – Track your spending plus get access to investment management services. This free app allows you to connect your checking, savings, loans, mortgages, etc. in one convenient place.