After completing Step 5, does your budget align with your goals? Did you make necessary adjustments and sacrifices? Do you have a positive balance each month throughout the year? Is your outgoing money less than your incoming money?
If so, it’s time to start thinking about your investment goals. We haven’t looked at these in previous steps because it’s important to get your basic finances in order first—walk before you run. Once the basics are in place, we can start incorporating investment goals.
### Investment Goals
What are your investment goals? Do you have:
– An Emergency Fund?
– A Roth or Traditional IRA?
– A 529 college plan for your children?
– Can you reduce a bit of your paycheck to put more towards your 401k or 403b?
These are essential elements to consider for effective money management and should be included in your budget.
Don’t feel pressured to tackle all of these goals overnight. Each year, aim to add at least one of them to your budget. The sacrifices will be worthwhile when you reach your investment goals.
**Tip**: The best time to add a new investment goal is when you (or your spouse) receive a raise. You were managing without that extra money before, so you can continue to do so by diverting it towards an investment goal.
**Tip**: Treat each new investment goal as an “expense.” This approach gives it the priority it needs and helps you adapt to living on less income as you “pay” into your investment goal. It essentially becomes part of your monthly expenses that you mentally prepare to meet.
### Emergency Cushion
An added benefit of including investment goals in your budget is the “cushion” you create for emergencies. For instance, if you suddenly lose your job or face a serious emergency, you can stop contributing to your Roth IRA or 529 plan. This action can immediately free up several hundred dollars, effectively reducing your expenses. However, reserve this for serious emergencies!
### Bonus – The 12-Month Budget Deluxe!
We’ve come a long way with your budget, but we can make it even better by splitting each column into “Projected” and “Actual.” This method helps track estimates versus actual outcomes. The monthly total will be the sum of both the projected and actual amounts, distinguishing what has already happened from what’s still expected.
For instance, if you make weekly daycare payments, it’s helpful to document what you’ve spent so far versus what is yet to be spent. The same applies to paychecks and other expenses.
### Instructions:
1. After reformatting your budget (or using my free version), list all your Income and Expenses under the “Projected” column.
2. As time progresses, enter actual transactions in the “Actual” column.
3. For each item entered in the “Actual” column, subtract the same amount from the “Projected” column to avoid double-counting.
Although it may seem unnecessary now, this method becomes incredibly helpful as you move forward with your budget. Plus, having your estimates visible serves as a reminder to pay bills or focus on specific categories.
Now it’s time to put your plan into action. Continue to the next chapter for more insights.
### Table of Contents:
– How to Budget – Introduction
– Step 1 – Where Does All My Money Go?
– Step 2 – Income Vs Expense
– Step 3 – Take It All The Way to 12 Months
– Step 4 – Add In Those Special Times
– Step 5 – Apply the Formula for Success
– Step 6 – Adding In Your Investment Goals
– Step 7 – Sticking to the Plan!
– Making It Easy with Mint
– Download My Excel Template
