Making A Spending Plan

Now that we know the importance of a “spending plan,” it’s time to make one. Remember we’re not using that dirty word (budget). We are going to use our spending plan to get our financial lives together.  I’m going to make my spending plan and I will share it with you guys.

The first thing we are going to do is gather all records of our income and expenses. This includes pay stubs, bank statements, bills, and receipts from the past month.  We are going to use these records to list our income and expenses in our spending plan. You can use the traditional pen and paper method, an online tool, or software such as Quicken or Microsoft Money. Software programs or an online tool may make it easier to track your spending and make adjustments.

After you picked your preferred method, record your monthly income. Keep in mind that your monthly income can include other things beside your pay. If you receive monthly income from investments, government benefits, rental property, or other business ventures, include this in your income. The next thing is list to your expenses. Place your expenses into categories such as food, rent or mortgage, transportation, clothes, utilities, insurance, unpaid debt, entertainment, etc.  Some of your expenses may vary from month to month. For example, your electricity bill varies based on your usage.  Put a range for these types of expenses.

Once you have made your expense categories, put them into two main categories- “needs” and “wants.” Be honest when listing your categories into “needs” and “wants.” Although you may be a fashionista and like to buy a new pair of shoes every month, this is a want, not a need.You might need your coffee in the morning, but you do not need to buy it from Starbucks every day.  You need to eat and a place to live. You need transportation to work or school.  Generally, your needs include food, basic clothing, housing, transportation, unpaid debts, and your other bills. Everything else is basically a “want.”  You can put money towards your wants once your needs are covered.

If you have no money left once you made your spending plan, you need to reevaluate your needs.”Yes. You need to be entertained, but you do not need to go out to eat every week. Find areas to cut back on your expenses. Eat less expensive food, move back into your parents’ house for a while, use coupons, drive less, and find cheaper forms of entertainment.

Once you created a budget you can live with, stick to it. Evaluate your budget every month and make any necessary changes.   Living with a spending plan takes discipline, but it’s worth it.

Contributor: Carol Szaroleta, Director of Marketing & Business Development, Destinations Credit Union, www.destinationscu.org