Your personal goals, those things you want to get out of life, almost always are based on finances.
Consider: What type of lifestyle do you wish to live now and in the future? What size home do you want? Do you want to be able to take a vacation every year?
The answers to these questions begin with a budget. It's the only way to take control over your financial situation.
Budgeting is simply the process of determining how much money you have and the manner in which you will spend it.
Many consumers without a budget end up spending everything they earn, leaving nothing for long-term savings. Some spend everything they earn plus money they haven't earned yet by purchasing goods on credit.
This dangerous buy-now pay-later attitude is most common among younger consumers, many of whom begin adulthood with credit card debt and student loans.
"For young people coming just out of college into a reasonably good-paying job, there are so many things they've been holding off on - a nice car, a home maybe, furnishings for their residence, even travel," said Jennifer Noah, financial planner with the Monitor Group. "They wind up in a good amount of debt."
But those disciplined enough to create a budget and stick to it can erase debt and build a net worth. Here's how:
Financial planners recommend consumers make a list of all expenses, both fixed expenses such as a car payment or a cable bill, and fluctuating expenses such as telephone, electric and grocery bills.
When you include credit card bills, budget your expense to be slightly more than the minimum payment. This will allow you to pay them off faster.
Subtract everything on the list from your after-tax monthly income, being sure to factor in company retirement plan contributions, which you should be making regardless of your financial situation.
The majority of whatever money is leftover after expenses should be earmarked for savings; the rest can be used for discretionary purposes, such as entertainment and eating out.
Advice on how much should be saved varies among financial planners. Ms. Noah recommends to her clients that they save 10 percent of their income.
She said it is easier for people to save if they eliminate or at least cut back on wasteful spending. Ms. Noah said many people are shocked when their budgeting process ferrets out how much they have been spending on non-necessities.
"If a person just adds up what they spend eating out, that is a major loss of money for other goals," she said.
Money budgeted for saving should be placed in a simple savings or money market account until it totals at least three months worth of living expenses. Only then should savings be used for long-term investments.
The purpose of the savings account is to act as an emergency fund designed to take care of unbudgeted expenses, such as a sudden dental problem, or a catastrophe, such as losing a job.
An emergency fund keeps you from liquidating assets set aside for retirement, because early withdrawal usually results in heavy taxation and penalties.
Some planners recommend having as much as six months of living expenses saved before diverting savings into investments.
"Some people are more vulnerable to setback than others," said financial planner Michael Cave, adding that all consumers should have at least some savings. "Everybody should have at least $1,000 in the bank. That's just a sign of maturity. And if you don't have $1,000, just take a baby step."
Expenses to remember
Weekly: Food, transportation, household supplies, child care
Monthly: Housing, utilities, phone, loan repayments
Quarterly and annual: Insurance, taxes
Other: Medical and dental expenses, repairs, entertainment
Reach Eric Williamson at (706) 828-3904.