Guest post by Angie Anderson Morris, CPA, Hawkins Cloward & Simister
You don’t have to wait for a new year to make financial resolutions. Start before the holiday-shopping frenzy begins so that you can keep your finances under control.
Taking charge of your finances can be accomplished with three steps. The first step is to set your financial goals, the second is to track your money, and the last is to create a budget and work within it. Three steps shouldn’t be too hard to follow, but as we often find, life throws a few curves our way and we fall off track. That’s why the first step of setting your goals is so important.
Set Financial Goals. As we manage the day-to-day flow of our money we probably don’t give much thought to where it is leading us. Sticking with a budget requires setting specific, reachable goals. Your goal may be to have financial security or to get out of debt. While those are good goals, they may be hard to reach because they aren’t specific or trackable. If you said, “I want to have enough cash in savings to cover six months of my living expenses” or “I want to pay off my home loan in 15 years” then you are defining what the goal means to you. These are specific goals with a future price tag that you can adjust your spending to reach.
Track Your Money in a Budget. The next step in our process is to see where we’ve been so we can figure out where we are going. We need to get a handle on the money coming in and going out. The easiest way to do this is to fill out a monthly budget worksheet. Don’t forget to include a line in your budget for reaching your financial goal. You can find an interactive budget worksheet on Kiplinger.com. You can easily get exact figures for big expenses such as a mortgage, rent, car payment, and insurance since they are typically the same each month. You will need to look at your bank statements, credit cards and receipts to find your other expenses, or use an online tracking tool such as Bank of American Fork’s online money manager. The more detailed you are in tracking expenditures, the more realistic your budget will be.
After going through this process, you will probably be in for a few surprises on how much you have been spending on the small things such as drinks at the gas station, weekly entertainment or eating out. You need to look through your expenses and identify where your money is seeping out and plug some of the leaks.
Work Within Your Budget. Now you have your budget worksheet completed, you should go through and identify those expenses that are needs and those that are wants. The wants are items we don’t need for our survival. I may think watching March Madness on cable is necessary for my survival, but it really should be in my want list and one of those items I need to consider adjusting to meet my budget. You can reduce or give up the want items in order to stay on track.
Once you’ve adjusted your spending, you need to determine at the end of the month if you have money left over or if you are coming up short. If you determine you are short, you need to go back through your worksheet and make adjustments. If you have money left over, put it towards reaching your financial goal. Make this the year you reach your financial goals by setting a budget and sticking to it!
This article should not be construed as tax advice from Bank of American Fork. Please seek tax advice from your qualified tax professional.