Your spending plan measures how your actual expenses match your desired expenses, and is also a guide to future spending, promptly paying your bills, and maintaining your good credit.
A Family Spending Plan is Critical
- 80% of all divorces in the U.S. are related to financial disagreements or difficulties.
- Americans have accumulated $400 billion in consumer debt. The average household has in excess of $20,000 of non-mortgage debt. (25% of all consumer purchases are by impulse)
- Only 3% of Americans have a plan for retirement.
How To Establish a Spending Plan
In this two-part series, we’ll cover eleven suggestions that are helpful in preparing your spending worksheet and establishing a successful spending plan:
1. Use your actual current income, not income from overtime, bonuses, or other sources.
2. Identify debts vs. expenses.
A debt is a bill that can be permanently paid off: car payment, credit cards, boat loan, dentist bills, and club fees. Expenses include payments for rent, gas, electricity, phone bill, car insurance and groceries. These are on-going expenses that will likely be with you the rest of your life.
3. Use a separate budget for each month.
Monthly expenses can fluctuate. To anticipate future monthly expenses:
- Review pay-stubs, tax returns, credit card bills, check books and other financial records.
- Keep accurate records; plan for the entire year.
- Review your total spending each month and compare it to your yearly plan.
This will give you an idea of where you are headed and how well you are following your overall financial plan, especially during the first year when you are trying to develop a workable spending plan. It is OK to make adjustments in your plan as long as you do not lose sight of your personal financial goals and objectives.
Most families use a 12-month budget, but you need not start your budget in January. You can start any time during the year. If this is your first budget, do a trial run using a shorter time frame to start. For a yearly budget, divide your income and expenses by the number of your pay periods. Most people are paid weekly or bi-weekly. Most bills are paid monthly and not all are due at the same time of the month. Estimate the due date of the bills and allocate your paychecks accordingly. Also allocate part of each paycheck towards new future expenses that you may foresee.
4. List all expenses, and all uses of cash.
Account for all cash and credit spending in your plan. You may be surprised at the amount of cash you are unable to account for. Cash includes ATM cash, grocery store cash back, bank deposit cash back, and credit card charges. Categorize all expenditures, i.e., how much was spent on food, entertainment, restaurants, etc.
We’ll finish this tomorrow. See you then,
Mark “Gunny” Thomas