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3. Set goals
Before you start cutting back on your expenses, stop and think about what you want to be able to afford. Most importantly should be an emergency (savings) fund and debt elimination, followed by major investments like retirement, college or a down payment on a home.
Don't forget to think about the fun stuff. Do you dream of visiting Ireland? Want to buy a boat? Write those down. Include other practical goals, such as braces for your son or a new water heater.
Next, include the smaller, personal goals. Do you want to have an extra $40 a month for your scrapbooking hobby? Or maybe you want to splurge on tickets to a sporting event or a fancy dinner every few weeks. Write down those, too.
Finally, calculate how much money you need to save to reach your goals by your desired timeline. For example, if you want to take that trip to Ireland in five years when your kids graduate, and you expect it will cost $7,000, then you need to save $116.66 a month. If that's not in the budget, that's OK. Start small. Saving $50 a month (or even $5) for a goal is a good start. Increase your savings as you can. Our Savings Jar SparkTeam is full of ideas and motivation.
Extra credit: The more debt you have, the longer you might have to wait to reach all of those goals. But no matter whether you owe $100 or $100,000, make sure you treat yourself once in a while. Deprivation has as detrimental of an effect on your financial well-being as a starvation diet does on your physical well-being. Reward yourself on occasion with that manicure, round of golf or even a new CD or book and you'll be more likely to stick to your budget.
Keep reading! Starting and Sticking to a Budget – Step 4