Last week I laid out what a budget meeting looks like. Today I’m going to be more specific about one element of budgeting, setting price targets. I like to think of them as mini-budgets.
Looking at your budget as a whole can sometimes be overwhelming, which is why I like to work with price targets. Let’s assume you bring home $5,000 a month making your food budget $600 a month. While $600 seems like a big number it’s gets more complicated when you realize this month has 31 days and you’ll need food for 93 meals. This also doesn’t account for all the different types of expenses “food” accounts for. From eating out to school lunches and work lunches to groceries to adult beverages, this generic food label gets more complicated. This is why I like to set up mini-budgets. By breaking down the $600 into smaller categories, based on previous spending, you have more specific mini-budgets.
Food budget $600
$350 groceries
$50 school lunch/work lunch
$150 eating out
$50 drinks
By breaking down a big category into smaller categories you are less likely to overspend.
Another benefit of price targets is in categories where your spending is really varied. Take for example clothing. Assuming the same take-home pay as in the previous example you’d have $250 to spend on clothing. But look at your last three months of spending:
Month 1) $300
Month 2) $420
Month 3) $275
You averaged $332, this is too high. Cutting back is important, but how? Start with 10%. Cutting 10% off this average means your new goal is a lower amount, but still manageable compared to your average.
Price targets help give you smaller, easy to accomplish goals. These small victories will help spurn you on to bigger and better financial goals.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.