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10.1 Getting Your Personal Finances in Order

• Specific: Indicate (in writing) exactly what you need or want. Elena Maria researched
reliable economy cars and determined that she would like to buy a used Toyota
Yaris, and she wants to spend $8,000.
• Measurable: Elena Maria calculated that it will take her 4 years to save up for the
car and pay for it outright. She estimates that she will need to save approximately
$167 per month.
• Action-oriented: Elena Marie plans to save the $167 by taking on a part-time Satur-
day morning job (which will earn her an additional $67 a month) and cutting back
$50 per month on both dining out and clothing expenditures, which will net her an
additional $100 per month. With the additional income and reduced expenditures,
she’ll be able to meet her goal of $167 per month.
• Realistic: Elena Maria feels confident she can achieve her goal. If she had wanted to
acquire a new turbo-charged Porsche 911, which has an estimated price of $85,000,
this would not be a realistic goal, given her current financial situation.
• Time-based: Elena Maria has identified the amount of time it will take her to achieve
her goal: 48 months.

We can assign goals to one of three time-based categories.

1. Short-term goals: These include goals you hope to achieve in the next year, such as
saving up to install new carpet or to purchase a high-end video console.
2. Medium-term goals: These include goals that you plan to achieve within 1 to 5 years,
such as your emergency savings, saving for a car (like the example of Elena Maria),
or saving for a down payment on a house.
3. Long-term goals: These include goals that take a bit longer, such as saving up for your
child’s college education or putting aside enough to see you through retirement.

Teamwork is essential if you have a spouse or family. You need to work together to come up
with agreed-upon goals, and you must function as a team to achieve them. Without clear com-
munication, you may not achieve your goals. Once you have a goal and an action plan to make
it happen, everyone can pitch in and help! Keep visual reminders of your goal by creating a
goal poster or putting a picture on your fridge. You should evaluate your goals over time to
see if you are still on track and whether the goal is still relevant: Perhaps based on new cir-
cumstances, you may want to revise your goal. For more information about setting goals, see
https://www.youtube.com/watch?v=1-SvuFIQjK8.

How to Create a Budget

Once you have tracked your spending for a month, you will be in a better position to create
a budget that fits your needs. After you have created a budget like the sample one for Elena
Maria (see Table 10.2), you will be able to track your spending on any given day and for any
given category (for example, dining out, groceries, personal care, and so on). Ideally, you will
be able to estimate what you spend on average in each category in your budget (based on
previous tracking), and you can fill in those amounts to see where you think you are at any
given point in the month. You can find free budget software options at the following link:
http://www.vertex42.com/ExcelTemplates/monthly-cash-flow.html, or you can use a sim-
ple spreadsheet such as Google Docs Simple Budget Planner (found here: https://docs.google
.com/templates?type=spreadsheets&sort=hottest&view=public).

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