Big budget month day three: setting your goals

In the third of our month-long series of articles, we look at what to think about when you're setting your financial goals.

So you’ve now got a budget in front of you showing your monthly earnings and outgoings. You’ve also kept a spending diary, meticulously recording everything you’ve spent money on, from your Monday morning newspaper to your Friday night glass of wine and everything inbetween.

You’ve looked at what you’re spending and highlighted some areas that you could tackle. But before you get to thinking about what areas you could cut back on, it’s time to think about your goals.

What are you trying to achieve by budgeting? Are you just trying to balance the books and ensure you only spend as much as you earn each month? Or do you want some money left over when the month comes to an end?

Are you saving for a specific goal – say a wedding or a home? Or, more seriously, are you drowning in debt and need to do something fast?

Write them down

Many experts recommend writing your goals down – once they’re committed to paper, there’s a far greater chance you’ll achieve them, so the theory goes.

Some people say you should aim high when you’re setting your goals, while others advocate a more realistic approach. Perhaps the best way to look at it is in terms of what you’re trying to achieve, how quickly you’re trying to achieve it and how seriously you’re prepared to take it.

If you’re determined to get your finances in great shape in a short space of time, you might want to make some radical changes to your lifestyle. I know a person who’s planning on renting some space in a farmer’s field and making a camp for his family to live in during the summer months. His goal? To own his first home. And that means giving up home comforts such as a permanent roof, central heating and furniture for six months of the year.

That’s an extreme example, but it illustrates the point that budgeting always means sacrifices. You need to weigh up what you're willing to sacrifice when you’re setting your goals.

Once you have set your goals, our free MoneyTrack tool, which combines all your bank accounts and credit cards in one place, can help you see how you're doing against them. By setting your goals and tracking your spending in MoneyTrack, you can see at a glance whether you're hitting your targets or failing.

From tomorrow, we’ll start to look at ways you can increase the money you have coming in and cut back on the money you’re spending.

More:
Big budget month day one: how to plan a budget
Big budget month day two: looking at your spending
The cheapest cars to run
How to haggle