Day 26: Craft A Spending Plan and Never Overspend Again

Personally, I love the concept of a “Spending Plan”. Why? Because a spending plan allows you to see the consequences of your spending before it happens. By planning your monthly expense before it happens, you eliminate the vagueness of planning without one and the subsequent chaos that follows when you don’t pay attention to your spending.

You can use the form I created to get started, or I highly suggest you do this in an excel spreadsheet so you can easily track your spending and update your information each month.

You’ll need to gather bills, bank statement and credit card statements together.  You’ll also need a calendar, your needs and wants list, values sheet and any other material from the challenge along with the goals you developed.

Make sure you find a comfortable place to work on your spending plan, free from distractions so you can focus on creating a spending plan that works for you and your family.

You’re going to start by generating a list of all the ways in which you make income or spend money.

Income:  You’ll include any and all ways income that comes into your home. Each person’s paycheck is separately listed as is revenue generated via self-employment.

Spending: Think of all the spending categories you have for your family. You can use the spending plan worksheet I developed or use your own. As much as possible, create subcategories for each category you create.

Now you’ll use everything you’ve prepared and gathered to start going line by line and plugging in expenses and areas where you’ll spend money.

Don’t forget special occasions and events like birthday parties,  weddings, a special party you’ll be attending.

Some of the amounts in your spending plan will be fixed, and some will be variable. Some will occur each month and some won’t. And because of this, your spending plan allows you to create a flexible plan that bends to the unique needs of your family.

This is where the plan starts coming together, and you see if you have a workable plan or not. If you’re using a program that does the math for you – great. If not, you’ll have to do the calculations yourself.

The Calculations:

1. Add up the amounts in each expense category.
2. Add up the totals for all the expense categories.
3. Total the amount in your income category.
4. Subtract the total expense from the total income.

So, does your spending plan work? Is it balanced?

If your estimated expenses exceed your income, don’t get discouraged. Step 5 is where you get to make decisions and figure it all out until it does work.

Here is what you must understand: The answer to the problem is NOT to use your credit card to make up the difference, but to find ways to make the plan work without incurring more debt.

One of the ways you’ll ensure this doesn’t keep happening is to start saving as a means of getting out of debt. You can learn about the concept here, but if you don’t include savings into your spending plan, you’re almost assured you’ll continue the vicious cycle of debt.

One of the tools out there that can really help you is a program called Digit.  Digit looks at your spending patterns and then puts aside money into a savings account, almost tricking you into saving. You can learn more about Digit here, but I’ve used the program and it really is a great way to save without any effort.

PLEASE don’t get discouraged if your spending plan doesn’t work right now. This is your first attempt, and most of us didn’t get it right the first go around either.

When you have more expenses than you do income, there are two questions you must ask:

1. Can I bring in more income, and

Can I reduce my expenses?

Go back to your categories and subcategories and find places you can reduce your budget.

One of the biggest budget busters out there is food, whether it be eating out or eating in. If you’re eating out, I would cut that first. It’s unnecessary until you’re out of debt and have more disposable income available to you.

The other is in your food shopping budget. We all have a tendency to spend too much in this category.

One of the ways in which I was able to drastically reduce my spending was by taking Erin Chase’s course, The Grocery Budget Makeover.  It was a real game changer for me and my family’s budget, and I was able to cut our expenses down significantly.

Whether or not you take this course, you’ll want to focus on this area of your budget because, from experience, I know this is a place where many can save hundreds.

The second area my family saved quite a bit was from canceling cable and using other alternatives like streaming Netflix, Hulu, and Sling. You’ll have to figure out your options in this area and see what works best for you and you family.

A third area might be your cell phone packages. I know that any time I’ve called my provider I’ve been offered a better deal, particularly if they thought I might want to drop them all together!

Go through your spending plan and figure out where you can make cuts.

Also, ditch any paid subscription services or memberships you’re not using.

The ways in which a family can bring in more income is endless. You can sell things online, start a business, take surveys and be paid for it, do overtime (if you have the option), find a higher paying job. These can be temporary fixes or permanent additions to your income streams. Either way, put your thinking cap on and see what you can come up with.

Blogging started as a way to make some additional money until I realized that it could easily replace my cleaning business income with full-time revenue and more! It was a no-brainer for me to eventually retire from cleaning so I could devote all my time to blogging.

Maybe blogging is right for you? If you’re thinking about it, visit the site www.EliteBlogAcademy.com and sign up for their free resources. It will give you a very good idea about what it takes to start a blog and if blogging might be for you! EBA only opens one time a year, so get on the wait list if you’re even remotely interested in blogging.

As you work your spending plan, certain emotions may surface for you. Maybe you’re angry at your circumstances? Or possibly you don’t like the idea of having to delay gratification because you can’t afford it? This is all a normal part of the process we all go through. Realize you won’t be here forever and that sooner rather than later, you’ll have more disposable income available because your debt will be paid off and you’ll be using other techniques to fill your needs instead of shopping.

Just take a deep breath and remember your mantra…

The key to this spending plan is to stay connected to it all month long. Tweak it when it needs tweaking, add something you forgot, delete what you need to. It’s totally under your control as long as you take the time to look at it and to fine tune it as necessary.

The best way to stay connected to your plan is to document your expenses and income as they come in. Recording what’s going on during the month is going to let you see where your money is going and if you need to make any adjustments along the way.

Although the paper and pen method is fine, I recommend that if you’re really serious about using a spending plan, you put this into an Excel spreadsheet so you can easily open it each day, document what’s been spent and have everything at your fingertips when you need it.

This is the way I budget, and I much prefer it over any other method I’ve every used. Although I loved many, this is by far my favorite way to plan my spending.

At the end of the month, you’ll want to sit down and take a good look at your spending plan. Here you’ll be looking at what was expected vs. what you actually spent by category.

This provides a fantastic opportunity for you to learn more about your own spending habits and to fine tune your spending plan moving forward. It’s also an excellent way to see how you may have veered off course a bit and how going forward you’ll course correct in the future.

What if your estimates don’t match what you spent? Usually, there are three reasons this happens:

1.  You’re not sure how much to allow. This is more than likely due to a lack of tracking your expenses long enough to have a full picture of how much you spend in a particular category. Over time you’ll get better at this.
2. Something happened that you did not anticipate. Maybe someone passed away, and you needed to send flowers. Or a family member was ill, and you needed to take time away from your job to care for them.
3. You spent impulsively and veered away from your plan. It’s important to use the resources I’ve supplied for you here in this challenge to prevent impulse spending and to find healthier ways to fill your needs that don’t require you to spend money.

That’s it. That’s the steps you need to take to develop your monthly spending plan and stay connected to it!