C.S. Lewis famously said, “You are never too old to set another goal or to dream a new dream.” For many, part of the American Dream is to own a home and at Fairway, we love being part of making that dream a reality for people. If you are working toward buying a new home or moving into a larger home, having a set goal, a budget and a plan for spending is key.
The word “budget” for some people has a negative connotation. In reality, having a budget means having a realistic spending plan that you can live with. You can succeed financially by having a plan and there are six simple steps to success.
- Set Goals
- Analyze Where Your Money Is Going
- Find Ways to Save
- Live Frugally (for a Set Period of Time).
- Pay Credit Cards
- Plan Spending Carefully
If your goal is to buy a new home or move into a larger home in the next year, you will want to you’re your eye on the prize. What’s the best way to set financial goals? Try following the time-proven S.M.A.R.T. format, which stands for:
Analyze what your goals are and how realistic they are in the next year and write them down.
Analyze Where Your Money Is Going
The following task is one you must absolutely accomplish – sit down right now (and every month thereafter) and go line-by-line over your credit card statements to determine where your money is going. “Discretionary” items like weekly $4 cups of coffee, $10 lunches, or $20 dinners adds up fast.
Once you have identified those items, then you must…CUT UNNECESSARY SPENDING! Every dollar you save on discretionary items can pay off debts faster and increase your savings.
Find Ways to Save
After you know where you are spending your money, try to eliminate needless spending. Too much of what we spend is just old habit or automatic payments that occur over time. Here are some quick things to find:
- Is your current mortgage rate too high?
- When is the last time you reviewed your auto and home insurance?
- Gym memberships
- Phone plans
Live Frugally (for a Set Period of Time)
It is easier to save $1,000 by cutting expenses than it is to earn $1,000 in income. A key to budgeting is that you have to be willing to make sacrifices for a definite short period of time. When you have your goal set, living under your means is an investment in your financial future! Practice financial discipline and accountability today, and you have the potential to achieve incredible financial success in the future.
Pay Off Credit Cards
To avoid the temptation to use your credit cards, follow this guideline: “If I have to charge it, I can’t afford it.” Read my blog about Declaring Independence from Debt here for practical solutions for paying down credit cards.
Plan Your Spending Carefully
Although every individual situation is different, here are a system that has been used for a long time by many of the most financially successful people:
- Live off 70% of your “take home earnings.” Spend no more than 70% on the necessities of.
- Use 10% to pay off debt (over and beyond your minimum payments) If you have any debt, use 10% of your income to eliminate this debt.
- Save 10%. Keep 10% of your income for short term savings to build a fund for emergencies and opportunities. Keep this money close at hand, like an interest earning checking account or money market account.
- Invest 10%
Invest for the future in stocks, retirement funds, etc. so that your money will make more money. Spread the risk over different types of investments. If you are looking for sound advice on how to invest, please let me know and I can connect you with someone I trust.
If buying a home is a goal of yours, I am available to meet with you to review your goals and create a plan for you to make your new home a reality.