Creating A Spending Plan

Setting Up and Implementing a Monthly Spending Plan
Written by Paul Richard, RFC - ICFE Executive Director

In preparation for setting up a spending-plan, list on a separate sheet of paper all sources of monthly income including gifts, bonuses, tax refunds, cost of living increases, dividends and interest income, etc. Note the frequency of each source. Total-up all sources of monthly income.

On separate sheets, list all monthly expenses. Expenses are separated into two categories: fixed and flexible.

A fixed expense is one that remains the same each month such as a mortgage or rent, a loan payment, insurance premiums, an amount of money set aside each month for such things as gifts, motor vehicle maintenance or clothing and uniforms, for example. Total-up fixed expenses.

Flexible expenses are those which are directly controlled. These include household and grocery items, utilities, entertainment, meals away from home, out of pocket expenses, etc. Total-up flexible expenses.

All expenses are totaled and then subtracted from the total income figure for the month. Next, divide total expenses by the frequency of income or the number of paychecks the household receives each month. This tells you how much to set aside from each paycheck . (Note: If the expense total is greater than the income total, you are out of kilter financially. Begin to prioritize expenses by noting every expense for which credit will be utilized in order to keep in the plan. Then ask yourself if you want to borrow every month for these expenses.)

Enough money to cover fixed and some flexible expenses from each income period should be kept in reserve in a special expense account. This reserve method for expenses from each income period is utilized to avoid the paycheck to paycheck routine. Don't take the reserve expense checkbook shopping. Review the spending-plan each income period and up-date year-long spending plans quarterly.

Click here for Printable Spending Plan Template

This sheet deals with planning income and outgo. The best basis for implementing a spending-plan is the frequency of income. The Institute of Consumer Financial Education's exclusive Wealth-Building Spending-Plan has a few basic concepts.

1. List the $$ amount and number of paychecks or income periods per month.
2. Expenses are separated into two categories: fixed and flexible.
3. All expenses are totaled and then divided by the frequency of income.
4. Monies for fixed and some flexible expenses from each income period should be kept in reserve in a special expense account. The reserve method for expenses helps to avoid the paycheck-to-paycheck routine.
5. Don't take that reserve expenses checkbook on shopping trips.

Don't worry about becoming a slave to your "Wealth- Building Spending Plan." Above all, it should reflect your values and it must be flexible to match your life-style. This plan will free some from the slavery of over-spending without saving. For others it could well bring order and new priorities.

Remember to review the spending-plan each income period, to be certain your money is going exactly where you planned.

Record keeping made easy:

It's not necessary to have an extensive filing system for keeping track of monthly expenses. An envelope for receipts and account sheets all that is needed. Separate expenses into fixed and flexible, and list them on account sheets as you pay them. Use business-sized envelopes for each month as you go along. Then get one big envelope, indicate the year or period covered, for the monthly envelopes.

Records from checking accounts, tax related transactions etc., should be saved for at least seven years. For household receipts etc., two or three years is OK. Insurance policies, etc. as long as they are in force. Tax returns for 7 years.

Click here for Printable Spending Plan Template