Budget Basics: Step 2

Budgeting Step 2

Table of Contents

Step 2 – Clearly Identify Your Financial Goals

This is Step 2 of Budget Basics – Once you have completed recording and totaling your monthly expenses and income in Step 1, you are ready to start identifying your financial goals. In order to achieve, your financial goals you need to be:

  • Specific (Know exactly how much your financial goal is in terms of $)
  • Achievable (Be realistic – and optimistic)
  • Written Down (Make yourself accountable to yourself)
  • Measurable (Set up a method to measure your success)
  • Monitored (Check your progress monthly)

Set Realistic Goals

Financial goals are not the idle fantasy of sudden and extreme wealth, they are the reality that you can create for yourself if you use your money wisely. When first setting financial goals it is important to set goals that you will be able to achieve in a reasonable length of time. For example, if you are currently carrying too much credit card debt and want to eliminate it totally, you can begin by reviewing your Monthly Expenses and Income Worksheet to see the details of your current credit card debt. You might want to start a goal worksheet to make calculations and notes on. In the case of paying down credit cards you might want to start by writing down:

  • How many cards you have
  • The balance on each card
  • The interest rates you are paying on each card, and
  • The total credit card debt owing.

Compare your Average Monthly Income to your total Average Monthly Expenses – is there money you could earmark for paying down your credit cards? If so, how much do you think you could pay your cards down by? Note: in the Average Monthly Expenses we have already accounted for the minimum payment that has to be made on each card. Let’s say that you have 5 credit cards and they look something like this:

CardsCurrent BalanceInterest Rate
Bank Card 1$158719.5%
Bank Card 2$95719.5%
Department Card 1$128528.80%
Department Card 2$24928.8%
Gas Card$34524.0%
Cards Total$4419.0

After reviewing your Monthly Expenses and Income Worksheet you see you could comfortably put $500/month towards paying down your credit cards. So it would be reasonable for you to plan that in 12 months you could be credit card debt free. There are a number of ways to approach paying down credit cards – but for this example let’s assume that you recognized that for you, paying off the smallest 2 balances first will give you the boost you will need to stick to the plan. Of course, since your goal is to be credit card free – you stop using your credit cards completely.

Each month, when you sit down to review your budget and to monitor your decreasing credit card balances, you will get the positive reinforcement you need to continue and to succeed.

There are all sorts of financial goals, but whether long-term or short-term it is essential that you know where you are in terms of your current finances by setting up and consistently monitoring your finances. This is best achieved by using a written plan (aka budget) which will serve as your guide to achieving your financial goals. We will go over how to set up your budget in Step 3 – where you will see how to put your financial plans onto paper and into action.

Take the Next Step

This is the Second Step of a four part series on setting up a workable budget. The entire series can be found here:

Budget Basics – Clearly Identify Your Starting Financial Position – Step 1

Budget Basics – Clearly Identify Your Financial Goals – Step 2

Budget Basics – Setting Up Your Budget – Step 3

Budget Basics – Follow Through or Rinse and Repeat – Step 4

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt and live in the Toronto area, call us at 416-498-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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