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Creating a Spending Plan
Budgeting your finances can be a challenge, but it becomes easier as you go along. Here are some key rules that will help you successfully budget your money.
- Set financial goals that are realistic and specific. This will help keep your spending in line or motivate you to save.
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- Pay attention to how you spend your money. Get in the habit of tracking your day-to-day expenses to see where all of your money 'disappears' to.
Click here for the Advantage Credit Counseling Money Monitor.
- Give top priority to your financial needs, then consider your wants. Prioritize your family's expenses according to needs.
- Set aside a fixed amount for savings every payday - ideally 5-10% of your net income. If 5-10% is too much, start with $10 a week and gradually increase the amount as you get in the habit of setting aside money in a savings account.
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- Limit debt payments to 15-20% of your net income. Are you over your head in debt?
Create a Spending Plan Step-by-Step
Step 1 - Compute your income
Step 2 - Add up monthly expenses
Follow these guidelines:
- List all fixed expenses, such as mortgage and loan payments.
- List all variable expenses, such as food, utilities, and gas.
- Don't forget periodic expenses - expenses that occur irregularly - such as car insurance, taxes, etc.
- If necessary, research expenses by using:
- Checkbook registers
- Credit card statements
- Phone and utility bills
- Expense tracking and the Advantage Money Monitor
- Enter all information on the Budget Analysis Sheet.
Click here for the Budget Analysis Sheet.
- As a family, set spending limits for individual spending categories. This will help you and your family prevent impulse purchases and to live within your budget.
Step 3 - Track expenses
Get in the habit of tracking your spending - the small everyday costs and the larger periodic expenses that don't occur every month. Your goal is to come up with a monthly figure to list in all applicable categories on the Budget Analysis Sheet.
Daily Expenses
Periodic Expenses
Periodic expenses are those bills that aren't due every month. Because they tend to be large bills, you need to set aside a certain amount every month. This way, the money will be there when you need it.
How to Save for a Periodic Expense:
- Calculate the annual cost.
- Divide by 12 months.
- Save that amount every month in a designated savings or checking account.
Examples of Periodic Expenses
- auto repairs/maintenance
- insurance not billed monthly (homeowners', life, auto, other)
- wage tax not deducted from pay
- clothing
- medical, dental, vision exams
- real estate taxes not escrowed
- water and sewage
- tuition
Step 4 - Analyze spending vs. income
- If your expenses equal or are less than your income, you're doing great. Continue to monitor your spending from time to time, and adjust to suit your financial needs.
- If you expenses exceed your income, you'll need to take action.
Pick the strategy that best suits your situation:
- Work overtime or a second job, if possible.
- Ask a family member to work part-time, if possible.
- Make sure that your federal withholding is correct.
- Do a combination of both.
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