Putting a Spending Plan Together
No matter how much money an individual or family has, one sometimes feels that more is needed. However, more money is not always the solution to financial insecurities. Better money management and goal setting can often help individuals feel and be more satisfied with their earnings. To start, this article offers the following benefits of having a spending plan and offers recommendations for developing your plan.
A spending plan can help you:
- Stay out of debt
- Identify areas for potential savings
- Provide a cushion for unforeseen expenses
- Save money for long-term goals
- Avoid impulse spending
- Establish financial control and direction
Five Steps Towards Developing Your Plan
- Identify Income and Expenditures. Gather all paycheck stubs, statements, payment booklets, check registers, credit card statements/bills, and receipts. Divide annual salaries by 12 to identify monthly amounts. Feel free to create your own categories and make “best guess” estimates as to certain amounts.
- Plan. Create anticipated spending amounts for each category. Use our recommendations in the following list to help you.
Housing: 23-33%
Life/Car Insurance: 4-6%
Food: 12-20%
Charities: 5-10%
Transportation: 7-10%
Personal Debt Repayment: 8-18%
Entertainment/Recreation: 4-6%
Clothing: 4-7%
Savings: 5-10%
Medical: 3-5%
- Monitor Your Spending. Keep written records of all your purchases and payments. Save all receipts and track all transactions in a notebook, or use a money management computer program such as Quicken or Microsoft Money.
- Review Your Progress. Compare your actual spending to your spending plan. Note any discrepancies between the two amounts to find areas that need special attention. Examine your spending to reduce or eliminate some expenses. Look for alternative ways to decrease or increase savings, income, and expenditures. Your life is constantly changing and that includes your financial situation. Review your spending plan at least once a month.
- Make Changes. As you review your spending plan monthly and assess whether it meets your changing needs, adjust expenses and/or income to reach your long-range financial goals.
Source: InCharge Institute of America
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