Using Long-term Goals for Short-term Budgeting Creates a Solid Plan
Many of us struggle to see farther than two weeks or a month ahead with our finances. When money is tight and you live paycheck to paycheck, it’s hard to think about an event in your life that may be several months or even years away. But the problem is, if we don’t plan for these longer-term events, we’re going to get caught short and really be in a mess when they do happen.
Not if, but when financial events happen
The average person experiences a major financial emergency once every ten years. You’re going to experience the ups and downs of life, no matter how prepared you are, so you need to be prepared! This is why it’s so important to have an emergency fund in place and to make emergency savings a part of your monthly spending plan.
Emergency fund isn’t enough
But there’s more to this long-term vision for short-term planning. It’s not just emergencies that jump out and get us. There are also those little ankle-biter expenses that we tend to overlook until they have to get paid. I’m talking about expenses that only happen once or twice a year, like insurance bills, water bills, vehicle registration, taxes, birthdays, Christmas, and more. These are things we know are coming, yet because we fail to plan for them we have the nerve to act surprised when they come due.
And because we’re so shocked to find out that these bills are due at the last minute, we resort to our brilliant plan for an emergency: our credit card. Then we have the gall to wonder why we can’t stay out of debt. Amazing, isn’t it?
Looking farther out than next month
When you do your monthly spending plan, you have to look farther out than the next paycheck. What bills do you have coming up in a few months or at the end of the year that you need to start saving for now? Figure out what’s coming due and start setting aside a monthly amount to save up for that expense. That way you’ll have enough money set aside to actually pay the full amount instead of letting VISA or Mastercard catch your slack and make you pay dearly for the help.
I know what you’re thinking: if you’re already living paycheck to paycheck, how are you going to set aside enough money for these expenses? Well, if you do your plan and you don’t have enough money to set aside you have one of two options. You can either spend less, or you can make more money. Either way, doing your monthly plan with the long-term goals in mind helps you identify whether your plan is feasible or not. If there’s not enough money to work the plan, your plan needs some tweaking. Time to sharpen the pencil, as they say.