Making Every Penny Count

Making Every Penny Count

This article is part of a series on budgeting. To learn more about budgeting, you may want to search for the budget-related articles in our Knowledge Center Library.

Setting Financial Goals

After comparing your income and expense information, the next step in the budget process is to set financial goals. It's a good idea to set short-term goals, which you can accomplish within one year, and long-term goals, which can take five years or more. You may even find it helpful to set mid-term goals, which can take one to five years. However you decide to set your financial goals, make sure your goals are realistic, measurable, and achievable.

Realistic goals can be achieved in a specified timeframe

Paying off a $2,000 credit card balance in two years is a realistic goal, while paying off a $200,000 credit card balance in the same timeframe is probably not.

Measurable goals can be quantified

Putting $10 in a savings account each week is a measurable goal, while putting random amounts of money in a savings account is not measurable.

See the University of Tennessee Extension publicationSetting and Achieving Financial Goals.

Eliminating Credit Card Debt is a Measurable Goal

While your financial goals are specific to your situation, you may want to consider setting the goal of getting out of debt as your number one priority. If you have credit card debt, you might consider reading the related articles in our Library. If you're only paying the minimum amount due, it can take you many years to pay off your credit card balance. Making payments greater than the minimum amount due can substantially lower the pay off timeframe and total interest paid. For example:

	Making Minimum Payment Only	Paying $20.00 Extra Per Month		Making Minimum Payment Only	Paying $20.00 Extra Per Month
Current Balance	$2,000.00	$2,000.00	Current Balance	$2,000.00	$2,000.00
Annual Percentage Rate (APR)	18.0%	18.0%	Annual Percentage Rate (APR)	9.9%	9.9%
Monthly Payment	$40.00	$60.00	Monthly Payment	$40.00	$60.00
Payoff Timeframe	24 Years and 1 Month	6 Years and 1 Month	Payoff Timeframe	12 Years and 4 Months	4 Years and 11 Months
Total Interest Paid	$4,396.66	$1,152.22	Total Interest Paid	$1,098.71	$466.97
Total Amount Paid	$6,396.66	$3,115.22	Total Amount Paid	$3,098.71	$2,466.97

Once you've set your goals, how do you meet them? Focusing on managing discretionary and variable expenses is an excellent way to meet your financial goals.

Managing Discretionary Expenses

Track your daily expenses in a notebook for a month. You may be very surprised to find out how much you spent. You're not alone. The little purchases add up. For example:

	Approximate Item Cost	Cost Per Week	Cost Per Month	Cost Per Year
Cup of coffee Five days/week	$1	$5	$20	$260
Pack of cigarettes Seven days/week	$4	$28	$120	$1,460
Eating lunch out Five days/week	$7	$35	$140	$1,820
Dinner out for two Two days/week	$40	$80	$640	$4,160

The amount you would actually spend on these items may be different, but it's clear that discretionary expenses can use up a large part of your money. A good way to think of a discretionary expense is as something you want rather than something you need. Examples include:

Subscribing to cable pay channels
Going to the movies
Eating out
Using extra telephone services, such as call waiting, caller ID, and voicemail
Getting cups of coffee at a store
Going to a salon to have a manicure or a pedicure
Having your clothes dry cleaned
Paying for Internet service

Think about your own expenses. Where can you eliminate or reduce discretionary spending to help meet your financial goals? For example, if you can't stop eating out completely, how about taking lunch to work three days a week? You'll save approximately $728 a year that you can put toward other debts. Other ways to save on discretionary expenses include:

Canceling cable pay channels or canceling cable completely
Renting movies instead of going to the movies
Grocery shopping for lunch and dinner instead of eating out
Canceling extra telephone services
Making coffee at home and taking it to work
Learning to do your own manicures and pedicures or asking a friend to help you
Using products that can dry clean your clothes in a dryer or stop buying dry clean-only clothes
Use a free Internet service provider

Another way to save on discretionary spending is to do things that don't cost anything. Read our Money Savers tips or our Guide to Getting Things for Free article in the CareOne Credit Knowledge Center Library.

Managing Variable Expenses

It's also a good idea to look at variable expenses as a way to decrease spending. Variable expenses can change month to month, such as:

Long distance
Electricity
Transportation

Think about your own expenses again. How can you account for variable expenses and keep them as low as possible? Using the examples above, you could:

Eliminate some or all long-distance calling
Write letters or use email instead of the telephone to communicate long distance
Turn all lights off when not in use
Switch from 100 watt bulbs to 60 watt bulbs
Set your thermostat to 65 degrees in the winter and 75 degrees in the summer to save on heating and cooling
Carpool to work
Trade in your gas guzzling sedan for a more economical compact car

Remember that creating and managing a budget plays a crucial part in your financial health and gives you the control you need to meet your financial goals. Visit the CommunityCorner.org website for a fun and colorful article aboutBudgeting Basics.

Take control of your finances and debt. Use our calculators and budget planner to help you manage your money.

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