Spending Plans -- Three Basic Steps
A spending plan is a useful tool that can help you meet your financial needs and reach your goals.
1) List the income you expect, and when you can expect it.
- Tip: Begin with only the income you can count on. Later, you can write down what you will do with any additional income you receive.
2) Write down your expenses. Start with those that are regular bills each month, then write down the amounts you spend on flexible expenses like food, fun, household items, gas, etc.
- Tip: Spend some time as you write your expenses, so you can come up with a complete list. You may even want to keep working on the list for a couple of days, so you can add expenses you may have forgotten. Make your best realistic estimate of what your expenses might be.
Don’t forget to:
- include some savings, even if only a little. Without some savings, every small problem can become a major emergency.
- plan for irregular expenses. These are the expenses that don’t occur every month, such as car insurance that’s due twice/year, back-to-school costs, holiday costs, memberships or subscriptions.
3) Balance income and expenses. When you add up your income and your expenses, it is unlikely that they will match. You’ll need to increase one side or decrease the other to make your budget work. When income is too low for expenses, this can mean some hard choices. But they will be your choices.