6. Step 1: Goals

Create financial goals

It’s easy to overspend on impulse purchases. You go shopping with cash in your pocket or credit cards in your wallet and see all kinds of things you want: cell phones, clothes, eating out, electronic gadgets. You buy them, but there may be things you still want—and need.

So how do you decide what you really need—or want? Which is it? And, why is it important to recognize the difference?

Like most people, you probably want more things than you can afford to buy. When deciding on the best ways to spend your money, it helps to write down everything you need and everything you want. Needs are items essential for everyday living, such as food, housing, utilities. Wants are desired, but unnecessary for living items, such as concert tickets or the latest game downloads. Differentiating your needs from your wants can help you decide what’s truly important and help you set goals.