Here’s something that might come as a surprise; budgeting for long term goals first requires budgeting for immediate needs and short-term goals. Until you get a solid handle on what you’re bringing home every month and how much of that is being consumed to cover your essentials, you’ll be at a loss to plan for the future.
With that said, before you can get started, you’ll subtract the total costs of your regular savings, bills, groceries and utilities from your income. A free budget app like the one offered by Clarity Money can help you figure this out. What’s left has probably been going to non-essentials such as entertainment, Starbucks and other whims. Applied judiciously, this cash can be the kernel from which your long-term savings goals germinate.
Mindset Is Everything
When you read that last paragraph you probably thought, “Oh great, next they’re going to say I’ll have to sacrifice my life to my long-term goals.” While it’s true you’ll have to dial things back a bit, cutting out fun altogether is the first step toward a failed plan.
The idea is to fashion an approach that will let you sock cash away for the dream while enjoying reality. Now, with that said, it’s also important to keep the dream top of mind. That way, when you see all of that cash stacking up, you’ll be able to resist dipping into it for anything less than your original purpose.
In other words, envision the future, while acting in the present.
Fashioning a Plan
The best way to visualize the potential is to decide what you want it to be. In other words, you need to clearly define your purpose, determine how much money you will need to accomplish it and set a time frame within which you’d like to see it come to fruition.
To establish your strategy, you’ll need these points of reference in hand.
Let’s say you want to save a $20,000 down payment for a new car in three years. Breaking this into equal parts, you’ll need to accrue $10,000 each year, which means you’ll need to save just over $555 monthly.
You can now look at your current budget and see where you can shift things around to make this doable. If you have bonuses coming upon which you know you can count, perhaps you can earmark those specifically toward achieving the goal. If you get an annual income tax return, that cash could be put toward accomplishing your aim as well.
If you have a rough idea of what those will be, you can adjust your savings plan with those figures in mind. Suddenly, rather than carving $555 out of your monthly budget; you can make it with considerably less. As you can see though, the only way to determine this is setting parameters within which you need to operate to obtain your desired result.
Getting Back to Mindset
One of the pitfalls of living in a market-driven society is the relentless temptation. You’re trying to save $20,000 to put down on the car of your dreams, while enduring a daily bombardment of ads touting cars you can get for less money.
Here’s the thing, if you abandon your plan and go for one of those, will it give you the satisfaction the car you really want would provide? Or (more likely), would you curse that car — and yourself — every day because you settled?
Meanwhile, everywhere you go, the one you really wanted is parked right out front.
Which brings us to the key aspect of budgeting for long-term goals. You must stay focused on the benefit you will derive when you realize your accomplishment.