Savings targets can reflect your family’s long term goals and dreams. Then there’s the fun stuff: saving for a vacation, holiday and anniversary gifts, a home-remodel, or a children’s college fund. In step 3, we identified the monthly figure for essential costs that you can use in your calculations for that goal. Other advisors suggest a range of three to six months of your household expenses. It’s a reachable target for a family just starting out on financial planning. In his own 7 Baby Steps to financial freedom, author Dave Ramsey set this goal at $1,000. That should be part of a savings line-item.Īnother savings goal is an emergency fund. Items falling outside a monthly schedule, such as an annual subscription or insurance payment, need to be covered as well. GOAL: A flexible list for additional expense categories that you have each monthĪs I mentioned in Part 1, a monthly zero-sum budget accounts for every expense within the month and ends with a zero balance at month’s end. These are also the areas of spending that your family can make a choices to reduce or eliminate when you all sit down and put the budget together. Dining, entertainment, subscriptions to streaming services, hobby supplies are also worth including in your budget, especially if they appear your spending history. Clothing, salon appointments, and health club memberships are essentials for your well-being, but you have options to control their costs if needed. Step 4: Identify your additional monthly needs GOAL: A complete list of expenses that must be paid each month. Regular medical costs, such as a subscription medicines or treatments not covered by your insurance, would be in this category as well. When you start building your monthly budget, these items take priority in the formula. Any loan, such as an auto-loan, student loan, or revolving credit card debt, is also here. Rent or mortgage, utilities, insurance, transportation, and groceries – these are the ‘need to pay’ items in your monthly budget. Step 3: Identify your essential monthly costs In Part 2, we'll be doing a little more homework in our spending needs before we call the family together. In Part 1, I talked about the first two steps of determining your basic monthly income and spending habits. As recommended by most financial advisors, my first action was establishing and maintaining a household budget. Last week, I shared the story of how the global financial crisis of 2008 prompted me on a journey to personal financial stability.
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