Taking the Pain Out of Budgeting (Part 2)

27 Apr Taking the Pain Out of Budgeting (Part 2)

You’ve got your list of priorities. What’s next?

For each of your priorities, imagine the day has finally arrived for your dream to come true. Imagine the satisfaction, the pride and the joy you’re experiencing. It’s just what you hoped! You’re experiencing satisfaction because you successfully took the steps necessary to make your dream a reality. You’re proud of your success. You’re happy because the dream was worth the effort.

Now imagine the opposite outcome. How will you feel if this dream doesn’t come true? How will you feel if the dream was doable but you didn’t take the steps that were necessary? I hate it when I beat myself up telling myself repeatedly what I should of and could have done. It’s one thing to be ignorant. It’s quite the opposite to know that the necessary information was at my fingertips and I didn’t take the time.

I hate feelings of regret. These feelings are worth avoiding!

Do you know how much money you’ll need to achieve your first priority? Follow these easy steps.

1. Find out how much it costs today for your priority
2. Today, how much savings do you have for your priority?
3. Over time, the costs of items increase. Decide how much more your priority will increase in price by the time you will need it. For a quick picture of what the U.S. inflation has been over the past ten years, take a look at this website: http://www.usinflationcalculator.com/inflation/current-inflation-rates.

Here’s a the link for Canada’s inflation rate over the past ten years, http://www.inflation.eu/inflation-rates/canada/historic-inflation/cpi-inflation-canada.aspx

4. To figure out how much your priority will cost use a future value of money website like http://www.free-online-calculator-use.com/future-value-of-money-calculator.html#calculator. If today I am willing to put $10,000 down on a new car and I assume inflation will rise three percent each year. If I’m planning on buying the car in four years, I’ll need to have $11,275. When I used this website, I assumed that inflation compounds daily.
5. How much do you think your savings will grow each year?
6. com has an easy to use calculator that will show you exactly how much you’ll need to save to reach your goal. The website address is http://www.bankrate.com/calculators/savings/saving-goals-calculator.aspx

Play around with this easy to use website. You’ll quickly learn exactly how much you’ll need to put aside to achieve your priority.

Play around with both the amount you put aside for savings as well as the interest that you will earn on your money. Notice how seemingly small changes make a big difference. This is the power of compounding. For example, if today I have saved $3,000 for a new car and I in four years I want to have $11,275, if my money earns two percent interest and I save $167.04 each month, I’ll reach my goal. If the interest that I earn is three percent, I’ll need to save $161.06. If I start with $3,200, I’ll only need to save $156.45.

You get the idea! Complete this exercise for each of your priorities.

Budgeting gives you an idea of what you can do today to get where you want to be tomorrow. Don’t get discouraged if you see you have to save more than you possibly have to meet your day-to-day expenses. Take this one small step at a time!