When planning your spending, keep in mind two very important points:
1. As long as you have checks in your checkbook, you have money in your bank account.
2. You should no longer use your credit cards when the magnetic strip on the back has worn out.
Of course, those two examples are absurd, but many have heard stories of people who lived according to those simplistic ideas. The truth is, however, almost as simple. Developing a monthly spending plan consists of three simple steps: Information Gathering, Making Decisions, and Planning for Success.
1. Information Gathering
The first step in making a budget is to gather all pertinent information as related to your monthly spending. So choose a month and then follow these instructions: Start by keeping all of your receipts. If you pay bills or purchase things online, print your receipts. It would be best if you got a manila envelope, labeled it ‘Receipts for (Month,Year)’ and kept that in a prominent, convenient and safe place. Then, make placing your receipts in that envelope a part of your evening routine, so that you don’t forget. Many people find that it is easiest to empty pockets or handbags of receipts upon their return home. Don’t forget to keep or print a receipt for your rent or mortgage and utilities payments, including cell phones!
But there’s more to step one of making a monthly spending plan. During this first month wherein you are gathering information, take some time on a weekend to consider other spending that happens periodically during the year. This type of spending includes insurance of all kinds, such as homeowner’s or renter’s, car, and even life insurance. Include periodic car maintenance charges and other vehicle-related expenses such as oil changes, wiper replacements and more.
Once you’ve added up all of your periodic monthly expenses, divide the total by twelve. Keep this number handy.
With all of the information gathered, you want to organize it. This is best done in a spreadsheet, which you can call ‘budget’ or even ‘monthly spending plan’ if you hate the b-word, although if you want you can use Microsoft Money, QuickBooks or even Mint.com. If you stick to your own homegrown spreadsheet, build categories like ‘Groceries,’ ‘Loan Payments,’ ‘Vehicle,’ ‘Clothing,’ and so on. Be as thorough as possible and plug all of the expenses you find on your receipts into those categories.
Then find the total of your monthly expenses. You have now finished Step One.
2. Making Decisions
Now that you have all of your monthly expense information gathered and organized, it is time to make some decisions. This can be a difficult step in making your monthly spending plan. Now, you should be able to easily compare your monthly expenses with your monthly income. If there is a negative difference, meaning that your expenses are greater than your income, you need to make some tough decisions. If there is a positive difference, you still need to make some tough decisions.
No matter what, you want to take a close look at your expenses so that you can find areas that you can trim. Almost anybody who has never made a monthly spending plan can find some areas of expense that they can trim. Perhaps your ‘Eating Out’ expenses can be trimmed without adding significantly to your ‘Groceries’ expenses.
Wherever the trimming is done, it needs to happen, especially if you have a negative difference between your income and expenses. You might need to start making some sacrifices. You might need to figure out ways to consolidate driving so that you can use less gas. You might also need to start exploring ways to save more money on groceries, such as seeking out web-based coupon providers, exploring your weekly mailer from your grocery store, or even just buying generic brands.
You can also determine to lower your utility costs by using less energy, water, gas or even texting less!
Don’t decide that you must constrain all spending completely. You must spend money to live, so don’t be too hasty or extreme. A constrained life is not what you are looking to live; you want empowerment.
So decide where you will trim your expenses and where you will put any excess money. Step two of making your monthly spending plan is complete.
3. Planning for Success
Making a decision to be more frugal and save for the future is a huge part of your monthly spending plan, or budget. But making a plan to ensure success is also crucial. Remember that you don’t want to see your decisions and plans as as constraining rules. Instead you are exercising empowered and informed spending, which will enable you to reach goals.
So, as part of your budget, if you have to give yourself a limited weekly allowance for eating out or clothes or something else, in order for you to pay off this or that debt, spend your allowance! Say, “I get to spend this money on myself. I will do so and will be moving towards my goals.” This keeps morale up.
Another part of planning for success with your monthly spending plan is putting in place mechanisms that make executing your decisions easier and more convenient. So automate your bill pay if you have recurring bills that don’t change in amount. You can also try using cash only for a few months to teach yourself discipline. To do this, when you get paid you can take your money out in cash, put away your checks and credit cards for the month, and then put the cash into envelopes labeled ‘Groceries,’ ‘Gas,’ etc. Tell yourself you cannot exceed the cash that is available to you in each envelope.
When all is said and done, the most important benefit of making a monthly spending plan is that you will be fully informed about your spending and income and you will have become empowered to manage that money wisely. You can reach your goals.