The first thing to do when you want to create a long-term budget is to determine how much you spend on short-term expenses. Once you establish how much you spend on current expenses, you can evaluate how much you can save for future investments. But try not to get too caught in the short-term mindset, always look at the bigger picture. If you’re always thinking about your next paycheck, you’re probably struggling to make it from one paycheck to the other. You have to think big in order to save big. Calculate your regular monthly expenses and save $100-$200 every month for yearly or unexpected expenses.
Once you’ve determined your monthly and annual expenses, subtract them from your income and see how much you have left to invest in your long-term goals. And what do I mean through long-term goals? It can be anything from that vacation to Hawaii next year to bigger investments such as buying a house, a car, planning for retirement, or sending your kids to college. Whatever it might be, you should always have a solid estimate of how much these long-term plans will cost. If you don’t know how much it will cost you, you can’t really plan for them, can you?
I know it sounds boring and totally scary to be forced to think about the future, but it will be less scary than being taken by surprise by an important event you should have planned for. Of course, you can’t see into the future and foresee every situation and always be prepared for everything, but at least when something unexpected comes up, you’ll have some resources to deal with the situation. You will feel more in control and at peace knowing that you have a certain amount saved up for dire situations. It will help you sleep easier.
There are a few things to keep in mind when creating a long-term budget:
1. Prioritize your expenses. Once you’ve figured out what you want for the future, you can start prioritizing your goals and saving money accordingly. Figure out how much you have to save per month to achieve your goals and how long it will be until you actually have to start paying for them. For instance, if you have a six year old boy, you know you’ll be sending him to college in twelve years, so you need to figure out how much you need to save per month to be able to start paying in twelve years. Or say you want to buy a certain car next year, how much do you have to save in order to afford it? Establish all your financial goals and set aside a monthly amount for each one of them.
2. Reevaluate your goals occasionally. Give yourself some wiggle room in case you want to add a new goal to your list or change an old one. Maybe you’ve decided to take a trip to Europe and want to add that to your goals or changed your mind and decided to buy a used car instead of that new one you were eyeing.
3. Don’t forget about unexpected situations. Don’t just settle to saving money for your already-established goals, always set aside a monthly amount for emergencies.
4. Use a spreadsheet or software to figure our your expenses and savings. You can do it with a pen and paper if you want to, of course, but it’s just easier to use a program destined for the job. Maybe the included features will even highlight things you may have overlooked.
5. Be willing to adjust your goals. If you realize you can’t save for all your goals, you have to adjust your goals, cut your expenses, or earn more money. Don’t put yourself down and get frustrated with yourself, try to be realistic and open-minded about your goals, or better yet use them as a motivation to earn more income.