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Budgeting 1-2-3

 MarkFoster_CCOABy Mark Foster

So you want to create a budget? That’s great! But slow down, there. Make sure to follow the three steps of budgeting. We often hear people talk about either skipping the first or second step, or both. Skipping either step can result in a broken budget.

Step 1 – Create some financial goals for yourself. Goals are your motivation for doing a budget and sticking to it. Let’s be honest – who wants to do a budget merely for the joy of doing it? Goals can be short-, mid- and long-term, plus practical things (like buying a car or home) or fun things (like a vacation). And, write your goals down because studies have shown that people are far more likely to be successful in achieving their goals if they’re written. Written goals help us to stay focused on them.

Step 2 – You MUST track your expenses before creating a budget. People who just start writing their expense totals down on a budget sheet without first tracking them are generally doomed to fail before they ever really began. That’s when we’ll hear comments of “I tried a budget – it didn’t work.” Track your spending for one month to see what you’re actually spending on food, entertainment, etc., rather than what you think (or more likely, hope) you’re spending. Not only will your budget be more accurate, and therefore more likely to work, you may also uncover some blind spots in your spending. Perhaps you will notice you’ve been spending too much on entertainment, or on dining out and will make some spending adjustments as a result.

Step 3 – Now you’re ready to total your expenses and jot them down on a budget sheet. The first two steps were essential: It’s similar to house painting – have you ever painted a room? Doing prep work such as putting down drop cloths over the carpeting and putting tape on the trim to protect it from stray paint ends up creating a much more successful paint job. Now that you have your budget, review and adjust as often as needed.

Mark Foster is Director of Education with Credit Counseling of Arkansas (CCOA). CCOA is a member of the National Foundation for Credit Counseling. Contact CCOA at 800.889.4916, or visit CCOA online at www.CCOAcares.com.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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