How do I set budget goals?

To set budget goals, you’ll need to determine what you value most and what you want to accomplish in the future, then consider how you can use your financial resources to make those things happen. You'll need to prioritize which objectives to focus on first based on importance and create a spending plan that will enable you to accomplish your goals. For example, if you want to save for a trip, figure out the total amount you will need for the trip and how much you will need to save every paycheck to meet that goal.

After that, you should monitor your progress over time to make sure you’re still on track. You should also give yourself an incentive to keep working on your goals. For example, if you are saving for a trip, you could agree to buy yourself a new outfit once you have saved up half of the money you need for the trip. You can learn more below.

How to Set Budget Goals

1. Determine what you want to achieve.

Whether it’s traveling, getting out of debt, or having enough funds to cover emergency expenses, think about the things you want to do and why. For instance, you might decide to build an emergency fund because you want to make sure you have money to cover unexpected expenses, or you could choose to save up for a new car because you constantly have to take your current car in for repairs.

Some examples of things you might want to do include:

• Create a budget
• Build an emergency fund
• Save for retirement
• Save up for a down payment on a house
• Buy a car
• Take a vacation
• Pay off debt

2. Consider your financial situation.

Analyze your income, your expenses, and your overall financial situation, including how much debt you have and whether you are living paycheck to paycheck, to get a sense of how quickly you can accomplish your goals. This will help you group what you want to accomplish into short-term and long-term objectives.

Short-term: These are goals that you plan to accomplish within weeks, months, or a few years. They can include things like building an emergency fund to cover at least three months’ worth of your living expenses or saving up for a vacation to take in the next six months.

Long-term: These are goals that will take you at least several years to accomplish and involve long-term planning, such as retiring or building a college fund.

You should also prioritize your goals by importance, so you know which ones to tackle first. For example, if you are living paycheck to paycheck, you may want to prioritize building an emergency fund to cover something like an unexpected car repair bill.

3. Create SMART goals with milestones.

Big goals are easier to reach when you set up smaller, more-manageable building blocks or checkpoints. For instance, if you want to save up for a car, you should create milestones like saving up half of the down payment within three months and the rest within six months.

This is part of making a SMART goal, which stands for:

• Specific
• Measurable
• Achievable
• Realistic
• Time-bound.

These elements can make sure your goal is reachable given your financial situation and the resources you have available to you. Taking the SMART approach also increases the likelihood that you will actually achieve your goal, by encouraging you to create a detailed roadmap for how to pull it off.

4. Adjust your budget to factor in your goals.

See how you can incorporate your goals into your budget. For example, if you are trying to save up for a car, you should analyze your income and monthly expenses to see how much you can allocate to saving for this specific expense every paycheck.

You may also have to identify areas where you need to cut down on spending in order to free up money to put toward a new car. If it turns out it is not realistic for you to save enough money from your paycheck or reduce your spending enough on your current expenses, you may have to adjust your goal. For instance, you may decide to buy a used car instead of a new car or get a lease instead of buying outright.

5. Monitor your progress.

Review your budget regularly to check your progress toward your milestones and overall budget goals. If you are not making as much progress as you hoped, you can adjust your plan to do things like allocate more of your paycheck to savings or reduce spending in other areas of your budget to come up with more funds.

6. Reward yourself for completing milestones.

It’s a good idea to reward yourself with something you like whenever you reach a budget milestone. This should be something small that doesn’t cost a lot of money, such as a cookie from a bakery or treating yourself to a pedicure. It will encourage you to keep going until you reach the final goal.

To learn more, check out WalletHub’s guide on how to make a budget.