Resolutions 2013: How to Make a Budget You Can Stick With

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FC Organizational Products recently asked 1,000 people about their 2013 New Year’s resolutions. The top five:

  1. Become more physically fit
  2. Improve personal finances
  3. Become healthier
  4. Lose weight
  5. Read more

While we can’t help you buff up or lose weight (unless you want to know about Getting in Shape Without the Gym), we can show you how to achieve your personal finance resolutions in the new year. It all starts with setting a goal and making a budget to get there. In the video below, Money Talks News founder Stacy Johnson shows you how to accomplish those New Year’s resolutions in a few easy steps. Check it out, then read on for more.

Now, let’s hash out the details…

1. Set a goal

Your first step is to set a goal – something you really want. If it’s not compelling, achieving it will be tough, especially if it requires sacrifice.

The most critical step in achieving goals is crafting them. Take the time to consider what’s important – not what should be important, or might be important, or what your spouse thinks is important. What’s your dream? What’s your burning desire?

Once you have a goal in mind, figure out how much you need and when you’ll have it. For example, my goal this year is to save $3,000 to put toward a new car by Dec. 31, 2013. The amount is exact and so is the date. It’s compelling because I hate my current clunker and – let’s be honest – I like picturing myself in a new car.

2. Create a plan

Step two – make a budget, otherwise known as a spending plan. While you can do this with a pencil and piece of paper, the best way is to use a free site or app that will automate a lot of the work. For example, Money Talks just formed a partnership with PowerWallet – a free site where you simply input your bank account, bills, and goals, and it does the rest: keeps track of everything you make and spend, reminds you when your bills are due, and helps you find extra money to accomplish your goals.

If you hate the idea of online budgeting, use one of these free budget spreadsheets, or simply write it down on paper.

Whether online or on paper, a spending plan is simply a record of everything you make and spend, divided into categories. That includes fixed expenses, like rent or mortgage payments, car payments, and insurance, as well as variable ones, like groceries, utility bills, and other purchases. Once these expenses are subtracted from your income, what’s left is the money you can put toward your goal.

The idea is to treat your goal like any other important bill. For example, I want to save $3,000 in 12 months. That means I’ll need to find $250 every month. If I already have that left over, no problem. But if I don’t, I’ll have to stare at my spending plan, see where my money is going now, cut some from other categories, and add some to my goal.

The trick to reducing expenses to come up with goal money is to find ways to cut without sacrificing your quality of life. In other words, gain without pain. Whether this is possible will depend on how much fat you currently have in your budget. But no matter how tight the budget, there are usually tips that can help you find extra cash. For examples, see articles like:

3. Follow your money

Online money management with a site like PowerWallet allows you to see your budget, as well as current balances for your checking account, credit cards, car loan, mortgage, etc., all on one page. It’s infinitely easier than paper, because it does the updating for you: All you have to do is log on every day. But if you prefer a pen and paper, you can keep your receipts and manually divide your purchases into categories daily.

Either way, tracking your spending shows you trends so you can make adjustments as you go. For example, last month I realized I had spent more on groceries than I’d planned. This month, I’m staying on top of my cart.

4. Stay focused on your goal

Finally, keep your goal in mind as you work your plan. PowerWallet has a goal tracker so I instantly see my goal when I log on, as well as how close I am to getting there.

Tracking your progress is one way to stay motivated, but there are others. Say you’re like me and want to buy a car. Why not stick a picture of the car you want on your refrigerator? Every time you grab something out of the fridge, you’ll be motivated to save more toward your goal. Trying to add more to your emergency fund? I have a picture of a piggy bank as my desktop wallpaper. It motivates me to save every time I log on (or off).

Bottom line? Most resolutions fail because we didn’t create a plan to make them happen. If your goals involve money, your path to achieving it is a spending plan. Make one, keep yourself motivated, and this year will be the year you find a way to change everything.

(Disclosure: While PowerWallet is free, Money Talks receives a small referral fee when accounts are activated.)

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