Tell your money where to go then make sure it gets there

Like a road map or the blueprints for your dream house, a Spending Plan shows where you are and how to get where you want to be. A Spending Plan is like strapping on a set of wings and learning to fly. In its simplest form, a Spending Plan is a sheet of paper on which you write your income for the coming month and what you will do with every dollar of it. You spend your paycheck on paper before you part with any of it.

Creating a Spending Plan

A good Spending Plan addresses every bit of income by giving every dollar a specific job to do. Some will be directed to pay the rent or mortgage payments, others will be assigned to food, utilities, and right down the line through your bills. Some will fulfill your Rule 2 long-term savings account, others will go to work hard in your Rule 3 giving, while some of those dollars will bring balance to your life as they are assigned to entertainment and fun.

Still others of your hard-earned dollars will follow your orders by heading to hiding places like retirement accounts and investments where they will be kept in reserve. A good Spending Plan becomes a great predictor and leaves a lot less to chance. The purpose of a Spending Plan is not to force you into a life of deprivation but rather to prevent overspending, which will keep you from falling into debt. It rarely matters what you’re overspending on dining out, entertainment, clothes. In the end it’s all debt

Essential Fixed Expenses

Write down your expenses. Start with your fixed bills like your Rule 2 Saving, Rule 3 Giving, Rule 4 Reserve Payment, rent, mortgage payment, car payment, credit card payments (if any), insurance, and other monthly expenses that are about the same every month. Include things like music lessons for the kids. While those may not be essential to the sustenance of life, they are things you consider necessary. These are your essential fixed expenses.

Essential Variable Expenses

Next, list your essential variable expenses. These are bills you have every month but the amount varies from one month to the next. Examples would be your utilities, food, household expenses, gasoline, medication, public transportation, shoes and clothing. You can assign an estimated amount to each

Non-essential Expenses

Next list reasonable amounts for non-essential expenses like entertainment, eating out, hobbies, and other ways you spend money in a typical month. This is the fun stuff. No matter how tight things are, it would be a mistake to eliminate fun and entertainment from your life entirely.

Miscellaneous Monthly Expenses

Look at your checkbook register and credit card statements or reports if you use financial software or electronic tracking for the past several months to find any expenses you’ve left out.

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