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Develop a Spending Plan A spending plan is another tool that reveals the impact goal setting could have on your personal finances. A spending plan, or budget (read Budget Don't Make Me Do It!), is your first step to building financial responsibility, and it is critical to effective decision making when developing your goals. Financial goals will not necessarily have a dollar amount affixed to them. This will require that you either generate more income or reduce expenses or possibly, if you already have monies allocated, shift monies within your plan. In any case, your spending plan will let you know if your goal is financially possible.
Additionally, 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.
If you haven't already put your plan together, don't hesitate to take action now.
Step 1 - Write It Down. Estimate your monthly take-home income and expenditures.- Gather information from your paycheck stubs, most recent statements, payment booklets and available receipts.
- Look through your check register and/or credit card bills for periodic purchases you may easily miss.
- Divide annual figures by 12 for monthly amounts; semi-annual figures by six, etc.
- Make "best guess" estimates when necessary.
- Add your own specific categories.
Step 2 - Monitor Your Spending. Track all purchases and payments.- Record all cash purchases in a small notebook.
- Save all receipts for review.
- Enter your payments and purchases into your spending plan. (Try this daily or weekly in the beginning.)
Step 3 - Review Your Progress. Compare your actual spending to your spending plan.- Identify areas that may require adjustments.
- Examine your spending to reduce or eliminate some expenses.
Step 4 - Make Changes. Adjust expenses and/or income to reach your long-range financial goals.- Continue to maintain a monthly spending plan.
- Occasionally reward yourself for your successful money management!
It is natural and expected that your goals and spending plan will change from time to time. The change signals growth, which may cause growing pains. Don't be discouraged; it's part of the journey towards financial independence. Keep an updated spending plan to give yourself a solid foundation on which to build and successfully accomplish your goals.
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