Monthly Spending Plan

Monthly Spending Plan Week 1 Days 1-7 Plan Actual Week 2 Days 8-14 Plan Actual Week 3 Days 15-21 Plan Actual Week 4 Days 22 to End Plan Actual Total Plan to Spend Total Actual Spent or Under? Spending Category Totals Average Net * Monthly Income: Amount Plan to Spend: Less Total Spent this Month: or Under Plan: or Under Income: 0 0 0 0 0 0 0 0 0 0 0 $ $ $ $ - * Use your net (take home) pay to develop your Spending Plan Monthly Spending Plan Week 1 Days 1-7 Plan Actual Week 2 Days 8-14 Plan Actual Week 3 Days 15-21 Plan Actual Week 4 Days 22 to End Plan Actual Total Plan to Spend Total Actual Spent or Under? Spending Category Totals Average Net * Monthly Income: Amount Plan to Spend: Less Total Spent this Month: or Under Plan: or Under Income: 0 0 0 0 0 0 0 0 0 0 0 $ $ $ $ - * Use your net (take home) pay to develop your Spending Plan Monthly Spending Plan Week 1 Days 1-7 Plan Actual Week 2 Days 8-14 Plan Actual Week 3 Days 15-21 Plan Actual Week 4 Days 22 to End Plan Actual Total Plan to Spend Total Actual Spent or Under? Spending Category Totals Average Net * Monthly Income: Amount Plan to Spend: Less Total Spent this Month: or Under Plan: or Under Income: 0 0 0 0 0 0 0 0 0 0 0 $ $ $ $ - * Use your net (take home) pay to develop your Spending Plan Monthly Spending Plan Week 1 Days 1-7 Plan Actual Week 2 Days 8-14 Plan Actual Week 3 Days 15-21 Plan Actual Week 4 Days 22 to End Plan Actual Total Plan to Spend Total Actual Spent or Under? Spending Category Totals (2) Average Net * Monthly Income: Amount Plan to Spend: Less Total Spent this Month: or Under Plan: or Under Income: (1) = (2) = (3) = (3) - (2) = (1) - (3) * Use your net (take home) pay to develop your Spending Plan (3) Monthly Spending Plan November Spending Category Giving Savings - Contingency Fund Freedom Account Rapid Debt-Repayment Plan Mortgage Payment Car Payment Gasoline Groceries Fast Food & Restaurants Electricity Water, Refuse Gas Telephones; land, cell Internet Service Cable TV Day Care Kid's Allowance Auto Insurance Medication Newspapers Entertainment Miscellaneous Week 1 Days 1-7 Plan Actual 300 300 300 300 Week 2 Days 8-14 Plan Actual Week 3 Days 15-21 Plan Actual 300 300 300 300 264 264 Week 4 Days 22 to End Plan Actual Total Plan to Spend 600 600 264 322 1,200 290 200 600 150 75 35 45 90 15 35 800 40 73 25 16 200 560 Total Actual Spent 600 600 264 322 1,200 290 172 637 177 84 35 42 117 15 35 800 40 73 22 16 116 315 or Under? 0 0 0 0 0 0 28 <37> <27> <9> 0 3 <27> 0 0 0 0 0 3 0 84 245 161 600 145 50 150 25 75 145 47 172 18 84 50 150 50 35 45 161 600 0 127 65 35 0 15 35 200 10 15 35 200 10 145 50 150 25 145 84 166 22 161 600 50 150 50 161 600 41 172 72 45 45 42 117 200 10 25 50 140 200 10 22 31 142 200 10 73 200 10 73 200 10 200 10 50 140 0 109 50 140 65 10 16 50 140 16 20 54 Totals Average Net * Monthly Income: Amount Plan to Spend: Less Total Spent this Month: or Under Plan: or Under Income: 1,470 $ 6,000 $ 6,235 $ 5,972 $ 263 $ 28 1,471 1,564 1,380 1,684 1,616 1,517 1,505 6,235 5,972 263 * Use your net (take home) pay to develop your Spending Plan The following "lesson" for using the Monthly Spending Plan was clipped from www.debtproofliving.com. It is highly recommended that you purchase a copy of Mary Hunt's book, Debt-Proof Living, as an additional reference. We’re in this together: Lesson #2 Welcome to Lesson #2 in our year-long group study to debt-proof our lives. Lesson #2 Overview Now that you’ve had a month to observe where your money goes, you are going to make a critical shift from recording what happened to deciding what’s going to happen. Last month your assignment was to keep track of your spending for 30 days by writing down for each day what you spent and how you spent it. You observed what happened and reported this on individual pieces of paper, one for each of you for each day of the month. This month you get a promotion. You’re going from reporter to director. Instead of concentrating on what happened, you’re going to project what’s going to happen. You will stop reacting and become proactive. Developing your first Spending Plan will be a major step in your quest to take control of your finances. Lesson #2 Objectives 1. To determine your average monthly net income. 2. To identify the places money is leaking out of your life. 3. To create a Monthly Spending Plan. 4. To understand how the Contingency Fund, Freedom Account and Rapid Debt-Repayment Plan work and how they will be implemented into your Spending Plan. Average monthly income Your average monthly net income is a very important number and one you need to identify now. This is the amount of money you receive into your household, after taxes and all other deductions including those that may be voluntary such as retirement plans. If you are self-employed or depend on commission-based income, do not assume this lesson does not apply to you. "You The Employer" needs to put "You The Employee" on a strict fixed salary. You The Employee should receive the same salary every month whether it’s an exceptionally good month or dry as a bone. If you are disciplined in this way you’ll be able to pay You The Employee even during the lean months, which will get you off the mystery means roller coaster. Using basic math skills come up with one figure for your total average monthly household net income. Look at that total. While not as impressive, this is a far more realistic number than your gross household income. You may have been fooling yourself into thinking you made a lot more than you actually have to work with. Look at the figure again. This is your income. It is the amount of money God is trusting you to manage each month. Monthly Spending Record You have just completed tracking your spending for one full month (see Lesson #1, CM Jan. ‘03). It’s time to analyze all of your good work. Pull those pieces of paper or that notebook out of the drawer and let’s take a look. What you see is a somewhat blurry picture of where your money goes. As unclear as it may be, these records will start the process of solving the mystery that’s been baffling you for a long time. Why is there never enough money even though I am sure that my expenses are less than my income? Using the Monthly Spending Plan Page 6 of 10 Determine spending categories Look at the way you spent money last month. Study the spending patterns. You tend to do the same things over and over again. These patterns will help you to detect "money leaks" (impulsive, mindless, unplanned spending) and also help you establish your spending categories. On another sheet of paper write down the different categories of spending you are observing, some of which may be unique to your household. The main categories we all have in common are Food, Housing and Transportation. Beyond that you will have Insurance, Utilities, Entertainment and the ever popular Miscellaneous. You’ll have many others, so take some time to work on your list of spending categories. This could be tricky, so don’t be surprised if you have to re-do your list several times before you get it right. The overly zealous student will come up with dozens of categories. That is way too many and will only create chaos. The more casual will try to get by with maybe five categories. That will be too vague because far too much spending will end up in "Miscellaneous." Let me suggest that 15-20 categories are about right. Right off the bat you should divide Food into several categories such as Groceries, Fast Food and Restaurants. If there’s one area where money is pouring out of your household income, it is likely in this area of Food. Merge daily records Once you have determined your categories (you can always go back and re-work them by adding or deleting), go through your daily spending records and assign each expenditure to one of your categories and then add up all of the items for each category. For example, go through all of your daily records and pull out the entries that fall under Fast Food. Add them up and enter this one amount next to "Fast Food." Do the same for Groceries, Savings, Gasoline, Rent, Giving, Debt Payments, Utilities, and so on. Once you have all of last month’s spending merged onto this one sheet we’re calling the Monthly Spending Record, calculate one grand total of all of the categories. This is how much money you spent last month. It could be a number that takes your breath away. If you spent more than the amount you’ve already determined to be your your average monthly net income, the verdict is clear: You’re living beyond your means. The only way you could do that (assuming of course that you did not rob a bank) is to use some kind of credit to supplement your income. Even if you missed recording some of your spending last month—or skipped some days completely—don’t let that deter you. You are developing a new habit that will change the way you think about money forever. You should go through this exercise anyway if for no other reason than to get you ready for the next month. As painful as it is to become accountable to a piece of paper for where your money goes, understand that it is a good kind of pain because you are learning so much about the way you manage your money. The light of truth may be blinding you right now, but you will adjust to it. It is helping you to focus on how money slips out of your fingers so easily and why you never seem to have enough. Getting through this first month has been the most difficult step so give yourself a pat on the back because you did it. You’re off to a terrific start! Set your Monthly Spending Record aside for a moment. You’ll need it for this month’s assignment. But first ... Debt proof formula Imagine what it would be like to go on an all-sugar diet—all sugar, all the time. I am told that you could live on sugar, but not very well. You would become obese but at the same time so nutritionally bankrupt you would have difficulty thinking clearly; you’d be tired all the time and probably look terrible. Your hair would fall out, you’d become anemic and your immune system would take a real beating making you suscep-tible to all kinds of illness and disease. Clearly, trying to exist on an all-sugar diet would be highly inadvisable. Spending all that you have every month and depending on credit to tide you over until the next paycheck is the financial equivalent of an all-sugar diet. It is so far out of balance it makes you feel terrible and worry all the time. An all-spending financial diet weakens your financial immune system so seriously that you become a target for all kinds of financial disasters. You have no financial defenses so are constantly coming under financial attack. Using the Monthly Spending Plan Page 7 of 10 You met the debt-proof living formula in Lesson #1. It holds the secret to your financial health: 10-10-80. Here’s how it works: When any money comes into your life, the first thing you do is give away 10 percent. Next you save 10 percent. Then you live on 80 percent of your income. At first you’re going to think this sounds too bizarre. You might be thinking that if you can’t make it on 100 percent of your income, how on earth will you do it on 80? The answer has many facets: You plug the money leaks, you scrutinize your spending, you get out of debt, you make better choices and little by little your life begins to change. Giving Giving, the first part of the debt-proof living formula, brings balance to your life. Giving some of your money away with no strings attached and not expecting anything in return is the antidote for greed and self-pity. Giving connects you to something greater than yourself; it takes your eyes off your situation. Giving is the tangible expression of gratitude and proves the condition of your heart. Saving Saving 10 percent of the money you receive before you pay anyone else demonstrates your level of financial responsibility, maturity and wisdom. That’s because you do not know what the future holds. Only a fool spends all that he has with no concern for tomorrow. Saving money is the antidote for insatiable desires. It builds patience and endurance. The 80 percent solution The third prong of the debt-proof living formula requires you to limit your lifestyle so that it fits within 80 percent of your income. The way to accomplish this is to challenge every expense and find reasonable ways to plug the leaks, reduce some expenses and perhaps even eliminate others altogether. At least for the short term. Debt-proof elements If the 10-10-80 formula forms the framework for debt-proof living, then the following elements are the infrastructure that holds it up and gives it strength and stability. Contingency Fund. This is your emergency fund that you will keep in a very safe place which will come to your rescue in the time of severe need. Reality says that sometime in the future you and your income are going to part company, if only temporarily. That will happen because of a job loss or some type of unforeseen medical issue. You must not worry, only plan for it. Your Contingency Fund should have a minimum of $10,000 or enough for you and your family to live without any income for three to six months. You will build your Contingency Fund with the 10 percent savings in the debt-proof living formula. Freedom Account. This is a management tool and special account into which you make regular monthly deposits for expenses you have that do not occur every month. Examples: Car repairs, family vacations, clothes, gifts, kids’ summer camp, etc. Using the Monthly Spending Plan Page 8 of 10 Rapid Debt-Repayment Plan. This is a unique and amazing way to quickly repay all of your unsecured debts (non-mortgage), such as credit cards, personal loans, student loans, installment loans and other non-collateralized obligations. The RDRP is funded with the minimum monthly payments you are already making on these obligations. Paying more than the minimum is not required, although you can boost your plan to accommodate paying more than the minimum. In summary, the Contingency Fund is built from the 10 percent savings in the 10-10-80 formula. The Freedom Account and Rapid Debt-Repayment Plan are both funded from the 80 percent of that formula. You will build your Contingency Fund and fund both your Freedom Account and RDRP simultaneously. It is not one element at a time, but rather all three of them simultaneously. Applying this Lesson Starting with a clean piece of paper titled Monthly Spending Plan, list these spending categories: Giving, Saving (or Contingency Fund), Freedom Account and RDRP. Below them add the spending categories you came up with for the Monthly Spending Record you created from last month’s spending (at the beginning of this lesson). You are going to project or plan your spending for the coming month. Start by entering the amounts you plan to give and save. Add up your minimum monthly unsecured debt payments and enter that one total figure next to "RDRP" even if you have not yet developed your plan (if you are new you probably have not). It is important that you begin to see those debt payments as a single fixed monthly expenditure for debt-repayment. If you have not created your Freedom Account in the past, you can leave this one category blank this month. However, keep in mind that it’s a mandatory element and will require funding in the future. Fill in the amount you plan to spend in the remaining categories. Some of your categories will be fixed and easy to project, i.e. your rent or mortgage payment, car payment. Others like your utilities, food and entertainment will require that you estimate based on past spending. The final step is to add up all of the entries on your Monthly Spending Plan. Compare that with what you know your income will be. If you’ve gone over your monthly income, start slashing until your projected spending is in line with your income. Start with everything that is not absolutely essential (meaning you are not legally obligated to pay it). Keep at it until your projected spending is in the same neighborhood as your monthly net income. Post this new Monthly Spending Plan in a place where you will see it every day. This month you will continue tracking your daily spending in the same way you tracked it last month. However, instead of waiting until the end of the month, merge your daily records into four weekly records. This way you will come to Lesson #3 with four tidy Weekly Spending Records. CM Using the Monthly Spending Plan Page 9 of 10 Looking for Freedom? 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