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Step two in family budgeting

September 29, 2016

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In this blog we will discuss the second step you need to consider in family budgeting: realistic financial goals. If you missed our first blog on how to first tackle the family budget, you can see our previous post here.

Family Budget Checkbox

First, you need to think about your goals. If you have a partner, talk about these goals with them. As a family you may have differing goals for your finances; use this as a tool to come together on prioritizing financial goals for the whole family.

We all know that savings are very important in order to have a successful financial future. Savings are similar to the foundation of your home – if your foundation is strong, it holds and supports everything else. If your foundation is weak, things could crumble pretty easily.

Once you’ve completed Step One you will have an idea of how much money you have left over to set aside for savings. If there is nothing left, then it’s important to revisit Step One to see if you can reduce any of your variable expenses to allow for some savings.

The important thing to consider with savings is having a target amount. The questions that often come up are how much, over what time frame, and what does that look like as a monthly amount?

In our opinion, the number one savings goal should always be emergency savings. Experts recommend having three to six months of expenses saved, and of course, you know the minimum you need to live each month because you’ve completed Step One. Emergency savings will help your family stay secure in the case of a job loss or an illness. It will also give you breathing room to make decisions and give you a level of comfort that you will not have to borrow funds from family or friends or use a credit card or line of credit to get by.

From this point on, the savings goals are up to you. It is important to first determine what is important for you – is it education savings? Retirement savings? Vacation savings? A down payment on a home? Once you’ve hit your savings target for goal number one, then you can redirect your monthly savings amount to something else. Set some short-, medium- and long-term goals, and always make sure to set an amount for each goal. Once you have some set amounts, try incorporating these into your monthly budget. If it doesn’t work, extend the time for your goal, making a smaller monthly commitment.

Here is an example of a Financial Goals Worksheet:

Goal Cost Target Date Monthly Amount Needed Order of Importance
Emergency savings $15,000 24 months $625 1
Weekend getaway $1,200 12 months $100 2
Down payment $30,000 60 months $500 3

Once you get to Step Four (stay tuned for our future blog on this) you can adjust your goals to fit within your budget. For example, you may not be able to save $500 per month for the down payment, but perhaps you can do $300. That means you can still reach your goal, but not in 60 months. It’s very important to be flexible so that you do not get discouraged.

You may want to consider setting up separate bank accounts for each of your goals; this will allow you to segregate the money from your day to day banking account.

Stay tuned for Step Three on budgeting!

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