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Creating Your Spending Plan

If you completed the income exercise in Module 3, you will know how much money you have to work with. Now you need to find out how much you are spending each month. You probably already know the big stuff, such as rent or mortgage payment, car payment, utilities (although they aren't always the same amount each month), and groceries. Do not overlook putting something into savings each month. Even $5 or $10 a month is a good start. An "emergency fund" can give you the peace of mind to ride out a large, unexpected expense.

Some expenses don't occur every month, so you need to put aside some money to pay them when they do come in - car insurance, property taxes, vehicle registration, and birthday/holiday presents. These are special expenses and you can map out when they occur and how much they will cost on a calendar. That way when these expenses come up in a month, you are prepared for them.

The hardest expenses to track are those "miscellaneous" items like beverages at a ball game, tickets to a movie, or a doughnut at work every morning. This money can float into and out of your pockets without much notice and you may be surprised to find you are spending more than you think. Between soccer practice and games, Jody and her husband realized they had spent $75 on specialty juices and other drinks for their children as they traveled from work to home to soccer and back. They kept a journal for a month, writing down everything they had spent and what it was for. This may sound totally tedious, but it really does work. One young couple, who were going to school and working, found themselves in financial trouble. At an Extension workshop on financial management, they heard about writing down all their expenses in a financial journal and it worked so well, they did it for the next three years. After graduating from college, they were able to abandon the journal because they had developed such good habits of spending and savings.

If keeping a journal is just too detailed for you, try saving receipts in a manila envelope, oversized can, or basket. At the end of a week or the month, add them up. If you have a computer, there are software programs that can help you keep track of what you spend in each category. Intuit's Quicken program or Microsoft's Money are relatively inexpensive programs that can help you know exactly where your income is going. If your "reports" section shows a large number in the "miscellaneous" column, you will know where you need to cut back.

Creating Your Spending Plan - part 2

Once you know how much money you can expect to earn each month, and how much you owe, it is time to compare. If you are lucky, and your income exceeds your outflow, you can move ahead toward your financial goals. However, if your spending exceeds your income, you will need to cut back on expenses. The first places to look for ways to cut spending are on food (at home or away from home), clothing, gifts, transportation, and entertainment.

Before you begin trimming, go back to your goals. Is the way you are spending your money consistent with the goals you agreed upon? Have several unexpected large expenses blown holes in what was basically a good plan? If so, how can you be better prepared in the future? It is important to be able to change your plan as circumstances dictate.

Sometimes couples run into problems because they draw their spending plans too fine. Everyone needs a little "pocket money" - money they don't have to account for to anyone else before they spend it. If "pocket money" is built in from the beginning, such personal allowances do not have to damage your plan.

As you achieve your goals, you will want to review your plan. Perhaps a good time to do this is on a significant date-perhaps the end or beginning of the year. Set aside some time to discuss what worked well, what did not work well, and what needs to be changed.

No one is born with the natural ability to manage money. Trying to operate financially without a spending plan is like trying to build a house without blueprints. As you go through life together there will be several other mileposts for which you will need to be prepared financially: the birth of your first child, the purchase of your first house, and investing for retirement. The earlier you begin looking toward these mileposts, the better prepared you will be when they arrive.

Copyright 2008, by the Contributing Authors. Cite/attribute Resource . admin. (2005, November 28). Finances. Retrieved January 08, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: This work is licensed under a Creative Commons License Creative Commons License