Budgeting Goals to Put You in Control of Your Finances

If you don't have a system in place for spending your money, your first budgeting goal should be to establish a budget. This is a monthly spending plan based on your income and expenses that helps you spend less than you earn and understand where your money is going.

Budgeting is not a complicated goal, but it does take discipline and some work to set up and follow. You'll need to assess your total monthly take-home income and expenses and then subtract your expenses from your income. Don't forget to include contributions to a savings account or debt repayment as expenses. Then, you'll need to figure out what to do with the surplus if the difference is positive or how to make up for the shortfall if the difference is negative.

If you're not sure how much you currently spend, record all of your expenses for one month and use the total expenses in that month as a baseline for spending. Many budgeting programs can also import past transactions and help you develop expense estimates that you need for your budget. You can always make adjustments to those initial amounts later.

It may take a few months to settle into a working budget. Also, your budget can change from month to month to meet your needs and current expenses. This is why you should re-evaluate your budget at the end of each month.

As you spend according to your budget, record the expenses throughout the month, preferably on a daily basis. This simple budgeting goal is essential to making your money work for you. If you do not know where your money is going, it is difficult to stick to your budget or change problematic habits.

Even if you're a budgeting pro, it's a good idea to revisit this goal to see if there are any areas you can improve on now. Identify general spending categories like housing, food, and entertainment, and then break them down into smaller categories. For example, within your grocery budget, evaluate how much you spend on staples versus convenience foods and try to optimize these amounts. Tracking your spending can even reveal recurring expenses for services you don't use and can eliminate from your budget (a membership to a gym you no longer attend, for example).

If you need help tracking your expenses and your spending, you have two basic options. You can go with an envelope budgeting system where you divvy up cash between separate envelopes for different spending categories. The other option is to use software to help you track what you spend each day.

Balancing is when you reconcile the balance that appears in your monthly bank statement with the balance in your checkbook register, which is a list of deposits and withdrawals to and from your bank account. While the task may seem archaic in the age of electronic payments, it can help prevent fraud or bank errors. Errors can lead to overdraft charges if you overdraw your account and the bank pays for the transaction.

Since the task of balancing requires the balance in your checkbook register to be current, it's a good idea to break this budget goal into two smaller tasks:

• Update the balance in your checkbook register daily to reflect new deposits and withdrawals.
• Reconcile your bank statement balance with your checkbook register balance each month.

This is relatively simple to carry out if you use budgeting software. If you do it manually, you'll need to match each transaction in your bank statement to the corresponding entry in the register and place a checkmark next to the entry in your register if it matches the statement. The two balances should match at the end of the month.

Most people can find ways to reduce expenses in smaller spending categories like entertainment or transportation without too much effort.

But assuming you have had a working budget for a while, you may have already reined in spending in these categories over time. If you need to make more significant budget cuts, you may have to cut spending in larger spending categories.

Challenge yourself to trim spending in at least three big categories—housing, child care, and food, for example. Certain fixed expenses like your mortgage or rent payment may be non-negotiable. Reducing these costs may require you to get creative—you may need to downsize, move to a lower-cost location, or shop around for a more affordable service provider. With other expenses, like food, you can save simply by cooking at home instead of eating out.

However, it's important not to trim spending too much because deprivation can cause you to prematurely blow through your budget out of frustration. With tweaking and planning, you can likely reduce spending in at least a few categories and live within your means but still lead a comfortable lifestyle.

This budget goal involves putting more money into your savings account than you did last year. This is a goal that you should work on after you have paid off high-interest debt (from a credit card, for example); it does not make sense to save money when you are paying a higher amount in financing charges than you are earning in interest from an interest-bearing savings account.

This goal can be accomplished in a number of ways. You can set broad goals like growing your savings by a certain percentage, or specific saving goals like building an emergency fund. Both approaches can help you avoid going to debt to fund surprise expenses and can financially prepare you for the future.

Just as you would include contributions to a savings account in your budget, make it one of your budgeting goals to designate investments as a spending category in your budget. For example, if you want to grow your retirement nest egg, budget a fixed amount each month to put into a retirement account (a traditional or Roth IRA, for example). If you prefer to invest in dividend stocks to draw a supplementary income now and in the future, consider directing your dollars into a regular brokerage account.

Like saving, you should only start investing after you have paid off high-interest debt. But the earlier in life you start investing, the more you benefit; through the power of compounding returns, even a small initial investment can grow in value substantially over time.