Finance & Economics

Smart Budgeting: 5 Essential Steps to Keep Your Finances on Track

Budgeting should be simple, not stressful. It’s a core competency of personal finance management and requires more than just keeping track of your day-to-day expenses.

Smart Budgeting: 5 essential steps to keep your finances on track

To achieve financial stability, you have to be able to plan long-term and ensure that you’re able to save money accordingly. This starts with making wiser financial decisions by fully controlling your finances. It’s all about maximizing your financial potential as it exists today and optimizing how you think about money.

Here are five essential budgeting tips to help you keep your finances on track.

Why and How Should You Save?

When it comes to setting and achieving goals, the first step is to ask “WHY”. Understanding why you want to save means understanding the essence of your motivation. As such, knowing what exactly you want and why you want it is the first step to managing your personal finances smartly.

What drives and motivates you to be ready to plan your budget for the long term, and are you willing to allocate financial resources? Keeping your savings goals in mind can help you stay focused and on track, even when things aren’t so easy.

Here are three questions you might want to ask yourself before making your budget:

  • What do you want, and why do you want it? For instance, do you want to travel the world or would you like to save up to study for a degree?
  • Is the goal you’re saving for a realistic yet challenging one? Will it require some concerted effort on your part while also having an achievable end goal?
  • Does the goal motivate you enough that you will want to stick with it, even if there are periods in which saving becomes more difficult for you?

Have Your SMART Goal System in Place

SMART stands for Specific, Measurable, Achievable, Relevant and Time-bound. What you have to do is to write down your specific goals that are measurable, achievable, and relevant to your budget and needs. Then set a deadline for achieving those goals.

Specific

Specific goals have a desired outcome that is clearly understood. No matter what it is, the goal should be clearly articulated so that you understand the objective clearly

Measurable

These are the numbers used with the goal. You need to have a quantifiable objective so that you can track progress, which in this context will be a specific amount saved.

Achievable

Goals need to be realistic to maintain the enthusiasm to try to achieve them. If the goal is not doable, you need to find a way to give yourself a fair chance.

Relevant

Each goal you set under the SMART system should be aligned with one another. Make sure that your savings goals are based on something that matters to you both now and in the future.

Time-Bound

Goals should have a deadline otherwise it will become very easy to procrastinate. Make sure you set a final date to allow you to properly evaluate your success.

Short-term Saving Goals vs. Long-Term Saving Goals

It’s important that you split your savings goals into two different categories: short-term goals and long-term goals. Both categories are important, and properly balancing each is the best way to ensure your savings strategy is sustainable. Remember to apply the SMART system to each individual goal.

Short Term Goals:

  • Emergency fund: Aim to save enough to cover 3-6 months of essential living expenses, including rent/mortgage, utilities, groceries, and insurance.
  • Vacation: Plan for your next getaway by saving for travel costs, accommodation food, activities, and souvenirs.
  • Car maintenance: Allocate funds for routine car maintenance like oil changes, tire rotations, and brake checks, as well as unexpected repairs.
  • Healthcare: Put money aside for upcoming medical, dental, or vision expenses not covered by insurance, such as co-pays, deductibles, or elective procedures.
  • Debt repayment: Focus on paying off high-interest debt, such as credit card balances or personal loans, faster to ensure increased financial stability.

Long Term Goals:

  • Real estate: Save for a down payment on a house. Typically, aiming for 20% of the home’s purchase price helps you avoid private mortgage insurance (PMI).
  • Investments: Create passive income by building a diversified investment portfolio to grow your wealth over time. Consider stocks, bonds, mutual funds, and more.
  • Home renovations: Put money aside for any significant home improvements you need, such as remodeling the kitchen or adding an extra bathroom.
  • Car purchase: You should save to buy a new or used car outright as this reduces the need for expensive financing and interest payments.
  • Family milestones: Make sure you save for rare or one-off family events such as weddings, milestone anniversaries, or significant birthday celebrations.

Have a Plan And Stick To It

Understanding your strategic vision for your savings goals and being aware of the tactics you need to achieve them is one thing. The final crucial stage is making sure that you stick with your plan consistently. If you don’t have a system in place that ensures financial discipline, then you won’t succeed in meeting your targets, leaving you back at square one.

This point is closely related to the time-bound aspect of the SMART system: making sure your goals have timed parameters, as otherwise, it becomes easy to procrastinate. Examine each of your savings goals and create a customized schedule for achieving them. This can be split into weekly, monthly, and daily sub-targets.

Use your common sense while assigning each timed metric to each savings goal. For example, saving up for a deposit towards a downpayment on a house is going to be something you work for on a monthly and yearly basis. On the other hand, if you’re saving towards building up an emergency fund for yourself, then focus on weekly, monthly, and maybe even daily targets.

Find Your Budgeting App

To achieve goals using the SMART system, it helps to learn from those who already use it. To meet each of these two factors, you can use the PocketGuard App.

There are no special requirements to use PocketGuard, and you don’t even need to know the SMART system in advance – the app is already designed to help you adhere to the system. Each financial target or savings goal can be custom-managed, allowing you to set specific and measurable goals that can be properly controlled.

Once you set a monthly contribution and the end date, PocketGuard’s smart algorithm will monitor your savings progress and notify you when you’re not meeting your targets. This is how the app provides you with accountability.

The PocketGuard app includes an automated bill and target tracker to ensure your goals are achievable too. When anything occurs related to a specific savings goal, whether that be a payment, due date, direct debit failure, etc., you’ll be automatically notified.

Using PocketGuard is the first step towards that dream vacation you’ve always wanted and the beginning of a plan that will help you save towards a happy retirement. The app will make it easier than ever for you to reach your financial goals; all you need to do is take that critical first step. Be smart and choose a better life for yourself.

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