Knowing where you are and deciding where you want to be is the reason for planning and control. You could just go with the flow and see where you end up. Financially, however, that's probably not the best course of action. Setting monetary goals for savings, a down payment on a house, or setting aside money so one of you can be a full-time parent requires planning. Planning requires a budget. Budgeting gives you control of your money.
Know Where You Are
When you plan a trip you have a starting point. It's the same with budgeting. You have to know what your financial situation is now. Get out your checkbook, financial statements, credit card statements and tax returns. Take a deep breath. Add up the total of your credit card balances, personal loans and other unsecured loans. Do the same with secured loans, such as those for your automobile and mortgage. Take control by establishing an emergency savings account and then paying off high interest debt.
What Are Your Expenses
Your next step is to figure out your monthly expenses. Go through the bank and credit card statements and make a list of everything you spend per month. Include expenses that don't occur every month by adding up what you spend in a year and dividing the sum by 12. Those expenses could be teeth whitening, auto maintenance, veterinarian visits and unexpected expenses, such as the cost of repairing a dishwasher or medical services.
Sit down and establish financial goals that both of you agree on. And "agree on" are the key words here. You need to work together. For example, if you're looking to buy a house you'll need a down payment of 2.5 percent to 5 percent of the mortgage plus closing costs of probably 3 percent. If the mortgage is $250,000 your down payment will be between $6,250 and $12,500 and your closing costs will be $7,500. Your goal would be to save a minimum of $13,750, with a more conservative goal of $20,000.
Time Frames to Achieve Your Goals
Subtract your monthly expenses from your monthly income. Hopefully you have a nice chunk of change left over every month. Divide your financial goals by that monthly disposable income. That tells you how long it will take to reach your goals. If you need savings of $20,000 to buy your house and your disposable income is only $500, it will take you a little over three years to reach your goal. If you want to get there faster, you'll have to save more.
Bite the Bullet
In the worse-case scenario your expenses exceed your income, maybe because you've been putting a ton of expenses on the credit cards. This requires drastic action. You'll never have control of your financial life without significantly cutting back on expenses and perhaps even increasing income through a second job. Establish what you want to save every month over and above paying the credit cards off as quickly as possible. Slash expenses to get to the amount. As an example, if your credit card balances total $10,000 and you want a $5,000 nest egg at the end of 12 months, you'll need to set aside $1,250 a month toward elimination of the debt -- not including interest -- and accumulation of the savings.
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