SMART HOME BUDGETING MODULE-01 · 2 1.1 Building a Healthy Relationship with Money Chances are, if you have 99 problems, money could solve around 70 of them. Money is a difficult

SMART HOME BUDGETING MODULE-01

1

1. Module 01-Learning how to budget:

Table of Contents

1. Module 01-Learning how to budget: ....................................................................................................................... 1

1.1 Building a Healthy Relationship with Money .......................................................................................... 2

1.2 Setting Financial Goals ......................................................................................................................... 4

1.2.1 Short Term Financial Goals .............................................................................................................. 4

1.2.2 Long Term Financial Goals .............................................................................................................. 5

1.2.3 Prioritizing Your Goals ..................................................................................................................... 6

2

1.1 Building a Healthy Relationship with Money

Chances are, if you have 99 problems, money could solve around 70 of them.

Money is a difficult subject to talk about. Nobody wants to talk about money with their parents, their

partners or their bosses. But why are so many people so nervous about money? It doesn’t even really exist.

The answer is that too many people do not just have a poor relationship with money; they do not have a

relationship with money at all.

Building a healthy relationship with your finances is not all that different to building a healthy relationship

with your friends, you partner or yourself. It takes time, care, attention and a good sense of humor.

Most people think that if they could just have more money, they could solve all their problems. Winning the

lottery rarely solves anyone’s problems. In fact, it usually just creates more. This is because the lack of

money itself is not the real problem; it all comes down to the way that you think about money.

Whether you love money too much, you’re completely terrified of it or you just don’t even think about it

until your credit card gets declined, almost everyone can stand to build a healthy, or healthier, relationship

with their money.

Money Is Not Your Enemy

Viewing money as an obstacle is one of the biggest underlying issues in dealing with personal finance.

But it is not entirely your fault. As a kid, you want money to buy things but money does not want you.

Money also gets you into trouble with your mother, the bank, your date or the friends you still have not paid

back.

When you think about your past experiences with money, it is not hard to see why anyone would think badly

about money. All it seems to do is bring us pain and stuff and it is rarely there when we need it.

3

But thinking of money as an enemy to be conquered is not a good way to think about money. Associating it

with the root of all evil is problematic when you want to build a healthy relationship with your checking

accounting.

Money Is Not Your King

Money does not control you or your happiness. Many people work for their money rather than letting their

money work for them. This is another kind of negative relationship because instead of trying to control

your money, you are controlled by your money through fear.

Having a relationship with something or someone who controls you is very often the mark of a bad

relationship. Think of it this way: how well do you work with a manager who controls you? Do you like it

when your partner makes you work for their affection?

If you would not think twice about letting a person treat you like you allow money to affect you, then you

need to change the way that you think about money.

4

Why does it matter how you feel about money as long as you are reaching your financial goals?

Because the relationship you have with money affects how you live your life with it. If you’re afraid of

money, you may be too focused on working hard and earning as much money as possible. While that sounds

good on paper, it does not take into account that you have other priorities in your life like family, friends

and fun. All three of these things deserve to be higher on your list of priorities than money.

Why? Because your family and friends are people that you love. Money is not a person. Money is barely

even a thing. It is a number the represents the currency that is currently associated with your name. You

cannot equate that with your best friend, your mother or even your favorite barista.

Your relationship with money will affect your long term goals, your short term goals and your financial

strategy. Sure, working like crazy now may seem like a good idea now. But it rarely works over time. You

need to think bigger when it comes to money. You will learn the tools that you need to accomplish this

through this course.

1.2 Setting Financial Goals

Everyoneneeds to set financial goals. These goals will be based on your personal goals, your relationship

with your money and then your means.

Everyone needs both short term and long term financial goals. These goals need to be realistic and

tangible.These goals are important to the overall budgeting process because you cannot track or measure

your success if you do not know what you are working for.

1.2.1 Short Term Financial Goals

Short term goals are goals that you can achieve relatively soon. Whether it is six months or a year, short

term goals do not require a long term savings plan or any financial tools to make work. Some goals will

require a small savings while others might see you temporarily setting aside a large amount of your salary

each month.

Your short term goals might be a new TV, a vacation, setting up an emergency fund or paying off a small

amount of debt.

5

1.2.2 Long Term Financial Goals

Long term financial goals are things that you save for over a period of several years or even your entire

life. A long term financial goal will usually cost a large amount of money. As a result, you will usually put

away a small amount of money each month into a savings account or an investment account to reach these

goals.

Long term financial goals will often include saving for a house or paying off your mortgage, your retirement

savings or setting up a college savings program for your children.

Why do you need goals?

Your goals will be an important part of your budget. Setting up a budget is all about finding a

healthy balance between spending and saving. Both of these activities are easier if you know what you are

saving your money for.

To make your goals work for you in the best way, you need to make them very specific.

A good goal will have an object, a timeline, the amount of money you want to save and how much you

want to save it.

A great example of a short term financial goal is as follows:

Sally’s cell phone has reached that two year mark where her warranty is expired but the phone barely

functions. Alas, she needs a new phone. But new phones are not cheap and they change all the time. So Sally

has a short term goal to save up $500 over the next three months to purchase half of the new phone. She will

do this by taking $300 out of her salary and cutting back on meals out to the tune of $200.

As you can see, Sally needs a new phone and she has a plan to get it. Her plan is distinct and addresses the

important parts of meeting her goals. Yet, it retains enough flexibility that she can make small changes and

meet her goals.

This is because she is cutting the number of times she will go to restaurants over the next three months but

she doesn’t give specific dates that she will do that. This way, she can prioritize the most important meals

and then not go out to eat when she doesn’t need to.

6

This flexibility is important because if Sally’s bans all meals out on weekends but her best friend plans a

birthday party for a Saturday, Sally will feel like she cannot go. Then, if she does go, she will feel like she is

doing something wrong. This mindset can have a profound effect on the rest of her spending. In fact, feeling

guiltymight cause her to end up being completely derailed from her goal of getting a new phone.

1.2.3 Prioritizing Your Goals

Whatever your goals are, you need to be able to prioritize them. These priorities will serve you well when

you are budgeting, saving and trying to deal with debt.

Your goals should be prioritized according to need rather than want.

Sally, from the previous example, prioritized her new phone as her number one short term goal. It’s hard to

survive in the modern world if you’re not constantly connected. Sally needs to be able to get work emails to

keep her job. She needs to be able to receive texts from her sister because they are collaborating on a big

surprise party for their parents. Her phone is also her lifeline to connecting with her friends who now live all

over the world.

But prioritizing is not always as simple as it is for Sally.

For example, your desire for a new car may be both a want and a need. But you have $5,000 in credit card

debt that has been sitting there for two long. You need to make a choice between putting off that debt for

another year or getting a car that is not necessary right now.

Unfortunately, there is no right or wrong answer to this question. You can’t predict the future. You just

need to use your judgement to make the right decision.You will learn more about this throughout this

course.