Develop a Personal or Family Budget
to Achieve Your Financial Goals

A personal or family budget is a plan to effectively manage money by tracking your income and monitoring your expenses. Developing a budget is a critical component when setting your financial goals. Done properly, a budget can help you to optimize the use of your income and minimize financial stress. You should be prepared to revise and adjust your budget as your needs change over time.

Steps to Develop Your Budget

(1) Set Goals: Before developing your budget, you need to develop a long-term vision of your financial future. Goals such as buying a car, a house and saving for college education will figure prominently into your planning as the achievement of these goals will require you to live below your means. You build your budget plan as a means to achieve these worthy financial goals. At the end of this step, you should have a sense of how much money you will need (in future dollars) to achieve your financial goals.

(2) Set a Budgeting Timeframe: Decide whether you will develop your budget around daily, weekly, monthly or some other time period. Monthly is the most common approach. Set some initial short-term goals around how much money you would like to have left over each month for saving and investing toward your financial goals.

(3) Get Organized: You then need to collect all of the necessary data to begin your planning. Bank account balances, investment statements, outstanding loan balances. This information is required to begin your assessment.

(4) Assess Your Current Financial Situation: You can’t reach a destination without knowing your starting point. The assessment is about defining your stating point in terms of assets, liabilities, sources of income, and spending requirements. At the end of this step, you should have a clear indication as to how much debt (if any) you owe and to whom and whether or not you are currently cash flow positive (Does your income exceed your assets?)

(5) Make it a Priority to Pay Off High Interest Debt: It does not make a lot of sense to be putting money into a bank account that could go toward getting you out of the high-interest debt associated with such things as credit cards. Your first priority should be in alleviating this debt.At the end of this step you should have prioritized your outstanding debt by rate of interest.

(6) Put Your Plan Into Action: Between income and expenses, the easier to control is the amount you are spending. Think about dividing your expenses into luxuries and necessities so you can achieve your short-term monthly savings goals that will enable you to achieve your long-term goals. Continue to trim the luxury items until you are saving at a rate that is consistent with your monthly goal. At the end of this step you should have a clear idea as to how you can consistently meet your monthly savings goal.

(7) Revisit and Revise: Re-assess your plan on a regular basis. Perhaps you could be saving more, thus decreasing the timeframe to realizing your financial goals. Or, perhaps your financial goals have changed.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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