Financial Goals

• Financial goals provide purpose for your money management plan. Common long-term financial goals include building resources to provide for a first-time home purchase, college tuition payments and a retirement lifestyle. In the short term, you may look to pay off $3,000 worth of credit card debt, while also saving up $5,000 in cash within the next six months.
  
  

Projections

• After listing out your financial goals, you will pull up an online financial calculator and toggle through projections. With the help of the online financial calculator, you can determine the amount of money that you need to be saving each month to both pay off debt and build toward a future lump sum of cash. You will compare these projections alongside current banking statements and investment paperwork to determine whether your financial goals are actually realistic. In doing so, you will subtract your monthly expenses from your monthly income to calculate the free cash flow available each month to put toward your goals. If your financial goals are far out of reach, you will be forced to cut expenses and improve cash flow.
  
  

Discretionary Spending

• Discretionary spending should be eliminated from your budget altogether, if you are struggling to pay bills on time. Discretionary purchases, such as fine restaurant dining, designer clothing and vacation packages, are not necessary for survival and do not add value to your bottom line.
  
  

Committed Expenses

• Committed expenses are mandatory to maintain a minimal living standard, observe the law and avoid loan default. Examples of committed expenses would include mortgage payments, utility expenses, health insurance premiums and income taxes. To reduce your committed expenses, you must often weigh up-front costs against the benefits of long-term savings. For example, you may opt to refinance into a mortgage that caries $3,500 in closing costs, if you can save $300 in monthly mortgage payments and plan to own your home for the next five years.
  
  

Debt Payments and Savings

• Once you have made adjustments to your budget, you will calculate a new free cash flow figure. This cash can be directed toward debt payments, savings and investments. You will prioritize debt payments according to interest rates, which means that you will spend extra cash to pay off an expensive credit card first, instead of making additional mortgage principal payments. From there, you can build six months worth of committed expenses in cash reserves before purchasing investments. As a beginning investor, you can buy mutual fund shares for as little as $50 per month. For diversification, each mutual fund share represents claim to a larger pool of multiple investments.