BUDGETING, SCHMUDGETING…WHY DO I NEED A SPENDING PLAN?

By Julie Chapman for

SPENDING PLAN – WHAT?

EXPENSES FOR THE TYPICAL AMERICAN FAMILY LOOK SOMETHING LIKE THIS:

30% HOUSING

20 % TRANSPORTATION

15% FOOD

18% OTHER

10% SAVINGS

7% INSURANCE

GIFTS, CLOTHING, HAIR CAIR, PERSONAL CARE, ENTERTAINMENT, ETC

SPENDING PLAN – WHAT?

WHAT IS A SPENDING PLAN?

A METHOD OF TRACKING PLANNED AND ACTUAL INCOME AND EXPENSES FOR A SPECIFIED TIME, USUALLY A MONTH

WHO SHOULD HAVE A SPENDING PLAN?

EVERYONE! REMEMBER FAILING TO PLAN AND PLANNING TO FAIL???

SPENDING PLAN – WHAT?

WHAT ARE THE COMPONENTS OF A SPENDING PLAN?

INCOME: any money coming in

EXPENSES: money being paid out FIXED EXPENSES: DO NOT CHANGE AND/OR ARE REQUIRED EACH

MONTH VARIABLE EXPENSES: OPTIONAL EXPENSES; AMOUNT VARIES

SPENDING PLAN – WHAT?

CHECK FOR UNDERSTANDING

IDENTIFY THE FOLLOWING AS EITHER INCOME, FIXED EXPENSE OR VARIABLE EXPENSE:

CABLE TV BILL

FIXED EXPENSE

BIRTHDAY CHECK TO YOU

INCOME

SPENDING PLAN – WHAT?

RENT

FIXED EXPENSE

UTILITIES

FIXED EXPENSE

GROCERIES

VARIABLE EXPENSE

SPENDING PLAN – WHAT?

PAYCHECK

INCOME

SNACKS AT SCHOOL

VARIABLE EXPENSE

GAS FOR YOUR CAR

VARIABLE EXPENSE

CELL PHONE BILL

FIXED EXPENSE

SPENDING PLAN – WHAT?

WHEN FORMULATING YOUR SPENDING PLAN:

INCOME – EXPENSES MUST = ZERO (IF YOU HAVE MONEY LEFT OVER, PUT IT IN SAVINGS! IF YOU DON’T HAVE ENOUGH TO COVER YOUR EXPENSES, YOU MUST CHANGE SOME OF THOSE EXPENSES.)

MANY PEOPLE SPEND MORE THAN THEY MAKE SO THEIR EXPENSES ARE GREATER THAN THEIR INCOME! THIS MEANS DEBT!YOU MUST FIGURE OUT HOW TO LIVE ON WHAT YOU MAKE AND STAY OUT OF DEBT! THIS IS ONE OF THE KEYS TO A HAPPY LIFE!

SPENDING PLAN – HOW?

FIVE STEP SPENDING PLAN1.TRACK CURRENT INCOME AND EXPENSES2.CREATE YOUR INCOME AND EXPENSE CATEGORIES AND ALLOCATE EVERY DOLLAR FROM #1 TO THE CATEGORIES. EXAMINE WHERE YOUR MONEY GOES!3.BASED ON THE TRACKING DONE IN #1, ALLOCATE AMOUNTS TO YOUR INCOME AND EXPENSE CATEGORIES FOR THE COMING MONTH4.START YOUR PLAN5.EVALUATE YOUR PLAN AND MAKE ADJUSTMENTS

SPENDING PLAN – HOW?

STEP 1. TRACK CURRENT INCOME AND EXPENSES• YOU HAVE TO KNOW WHERE YOUR MONEY IS GOING BEFORE

YOU CAN TRY TO CONTROL IT.• KEEP UP WITH EVERY PENNY YOU SPEND FOR AT LEAST A WEEK. A

MONTH WILL GIVE AN EVEN CLEARER PICTURE• WRITE DOWN EVERY DOLLAR YOU BRING IN FOR THE SAME PERIOD.

(unfortunately, this is usually way easier)

SPENDING PLAN – HOW?

STEP 1. TRACK CURRENT INCOME AND EXPENSES

• WRITE IT DOWN ON PAPER• USE AN APP ON YOUR SMARTPHONE• USE SOFTWARE IN YOUR COMPUTER

IT DOESN’T MATTER HOW YOU DO IT, JUST DO WHAT WORKS FOR YOU!

SPENDING PLAN – HOW?

STEP 2. CREATE YOUR INCOME AND EXPENSE CATEGORIES

• WILL REFLECT YOUR OWN, PERSONAL LIFESTYLE, BUT CERTAIN CATEGORIES WILL APPLY TO MOST

• INCOME – USUALLY WAGES FROM A JOB; USE YOUR NET PAY

• OTHER INCOME – GIFTS, INVESTMENTS

SPENDING PLAN – HOW?

STEP 2. CREATE YOUR INCOME AND EXPENSE CATEGORIES

• EXPENSES (SUGGESTED ONLY; YOURS MAY DIFFER) SAVINGS (PAY YOURSELF FIRST) HOUSING (HOUSE PAYMENT OR RENT) UTILITIES TRANSPORTATION INSURANCE SAVINGS FOOD ENTERTAINMENT OTHER

SPENDING PLAN – HOW?

3. BASED ON THE TRACKING DONE IN #1, ALLOCATE AMOUNTS TO YOUR INCOME AND EXPENSE CATEGORIES FOR THE COMING MONTH

THIS IS THE HARD PART. THE FIRST TIME YOU DO THIS, IT MAY SEEM LIKE YOU ARE JUST GUESSING. STAY WITH IT. IT GETS EASIER!

YOU MAY ALSO USE THE “TYPICAL AMERICAN” EXPENSE PERCENTAGES HOUSING 30% - TRANSPORTATION – 20% FOOD 15% - INSURANCE – 7% SAVINGS 10% - OTHER 18% (MORE DETAIL HERE)

SPENDING PLAN – HOW?

4. START YOUR PLAN• CONTINUE TRACKING INCOME AND EXPENSES• NOW ENTER THEM INTO THE CATEGORIES IN YOUR SPENDING PLAN• USE PENCIL AND PAPER

or• SMARTPHONE APP

or• SOFTWARE ON YOUR COMPUTER

SPENDING PLAN – HOW?

4. START YOUR PLAN• YOU MUST USE CONTROL HERE! IF YOU ARE OVERSPENDING

IN ONE CATEGORY, CUT BACK OR SPEND LESS IN ANOTHER CATEGORY.

• IF YOU DON’T USE SOME TYPE OF CONTROL, YOU HAVE WASTED YOUR TIME!!

SPENDING PLAN – HOW?

5. EVALUATE YOUR PLAN AND MAKE ADJUSTMENTS• AT THE END OF THE MONTH, YOU MUST ANALYZE YOUR PLAN AND DECIDE IF

ADJUSTMENTS ARE NECESSARY. DID YOU OVERSPEND IN ONE CATEGORY? WAS IT NECESSARY OVERSPENDING?

IF SO, YOU MAY NEED TO CHANGE THE AMOUNT BUDGETED! IF NOT, YOU NEED TO EXERCISE MORE CONTROL IN THE COMING MONTH.

SPENDING PLAN WILL NEED ADJUSTMENTS FOR AT LEASE SEVERAL MONTHS. EXPECT THIS AND DON’T GET DISCOURAGED

SPENDING PLAN – HOW?

5. EVALUATE YOUR PLAN AND MAKE ADJUSTMENTS

KEEPING A SPENDING PLAN IS A HABIT! START NOW WHILE YOUR FINANCIAL SITUATION IS FAIRLY SIMPLE.

DON’T SAY “I DON’T NEED TO DO THIS NOW.”

START NOW AND IT WILL BE EASY FOR YOU WHEN YOU ARE ON LIVING ON YOUR ON!

SPENDING PLAN – HOW?

LETS PRACTICE CREATING SPENDING PLANS!