Developing a Written Spending Plan, Part One
Keeping detailed records of your spending for one month will help you see where you may be frittering away your money. It won’t, however, provide you with all the information you need to develop a realistic spending plan. You may have quarterly tax or insurance payments, for example, that didn’t show up in last month’s spending.
To get a better idea of what’s realistic for each spending category, pull out old check registers, receipts, and credit card statements from last year. Tax records can also be useful. Try to figure out approximately how much you spent monthly in each of your budget categories. Don’t be judgmental here; simply total the amounts you spent. (It’s likely you will find that some of your money just “disappeared.” Don’t worry about that money. Just document as much as you can.)
Now, the most difficult part: deciding how you will spend your money each month. Examine your past spending habits, and try to develop a plan that allows you to pay your bills and have some money left over for fun.
How much you choose to spend in each of your budget categories depends on what you need and how you choose to spend your money. But keep in mind that if any expense really seems out of whack or is eating up a big chunk of cash each month, it may need to be reduced. One of the most common traps is a huge car payment for an expensive new car. When you add on the insurance and gas and everything else it takes to maintain it, a car can end up keeping you from getting ahead.
Remember: The amounts you allot for each category cannot total more than your income for the month, or you are going to have to borrow to make up the difference! It’s likely that, in the past, the amounts spent on each category did add up to more than your monthly income. That’s how you got into debt.
It may be helpful to start at the top: First deduct from your total monthly spending allowance enough money to cover those bills you must pay. Next, allot money for essential purchases, including gas, insurance, and food. Then figure in discretionary spending that you don’t want to sacrifice: music lessons for the kids, an evening out a couple of times a month, or health-club dues, for example. Divvy up what’s left over among the remaining categories.
