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Personal Spending Plan

Use the Spending Plan to Set a Financial Goal
spending plans are used to set financial goals such as saving for a home down payment, saving for college, saving for vacation or saving for an approaching life-event.
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Personal Spending Plans:

Developing a Spending Plan

Step 1:
Identify Your Income

You first step is to identify and segment your income sources as steady or temporary income.

Steady incomes refers to employment, social security, support payments, pensions, and investment trust income that is steady and on-going. These income payments are somewhat insured to continue for the foreseeable future.

We understand that income is never permanent — you can lose your job or find yourself fighting to retain your support payments. But for spending plan purposes, these steady streams of income will be used for setting up your budget.

Temporary income includes income that is limited such as unemployment benefits, money from relatives, service payments for babysitting, yard work, housing cleaning, etc.

These temporary incomes are flexible and should be omitted from your spending plan. Consider temporary income as extra savings that can help achieve your spending goals.

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Step 2:
Estimate How Much You Spend Each Month

Start by downloading this Expense Recording Worksheet

It lists categories with individual expense items.

You may also use an Excel® or Lotus123® workbook: click here

Take the Expense Recording Worksheet and record every expenditure you make during the month. This includes food, gas, utilities, loan payments, etc. If you have a one-time annual payment that covers an expense for the entire year, divide it by 12 and place it under the category listed.

Keep a good record of all cash, check, and credit card payments. This list will be used for planning your budget in Step 4.

Understand your fixed expenses, such as:

— rent or mortgage
— household bills
— loan payments
— insurance payments

Fixed payments are expense items that must be accounted for monthly and become your first priority when setting up your spending plan.

Understand your flexible payments, such as:

— food and home living supplies
— clothing
— transportation (fuel, repairs)
— medical care
— recreation and entertainment
— gifts, donations

Flexible expenses are "variable". These expenses can be reduced and in some cases eliminated in order to meet your spending plan.

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Step 3:
Define Your Spending Goals

Identify what you are looking to accomplish with your spending plan.

First define your short-term spending goals such as:

— holiday gifts
— new entertainment center
— upcoming education expenses
— next summer's vacation
— other

And then define your long-term goals:

— buying your first or second home
— saving for your child's education
— planning retirement
— paying down debt
— other

For each goal, estimate the cost and the amount of time you need to achieve your goal. The list will be used to prepare your budget.

Use this form to list and estimate your spending plan. The estimated Monthly Savings Allocation is the savings target you need to hit each month to achieve your goals:

  List Your Short-Term Goals   Est. Cost
1: $
2: $
3: $
4: $
  Estimated Months to Achieve Goal   months
  Total Cost to Achieve Goals $
  Est. Monthly Savings Allocation $
  List Your Long-Term Goals   Est. Cost
1: $
2: $
3: $
4: $
  Estimated Years to Achieve Goal   years
  Total Cost to Achieve Goals $
  Est. Monthly Savings Allocation $

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Step 4:
Plan Your Budget

After making a record of your expenses for one month, take the Expense Recording Worksheet and budget your expenses for the month using our online budget worksheet.

Go to the online budget worksheet

The objective is to build a budget where you can save each month about 2-10% or more of your total income to achieve your short- and long-term spending goals.

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Step 5:
Adjust Your Spending Plan

Now comes the fun part — adjusting your budget allocations to meet your short- and long-term savings goal — based on the spending allocation noted under Step 1.

Note that fixed expenses cannot be adjusted by much. But flexible expenses can be reduced and in some cases eliminated as needed. You may need to use the Expense Recording Worksheet to compare your actual expenditures with your budget.

Another popular method is to set aside income at the beginning of the month for the budgeted expenses. You may do so by accounting notation, money software, or storing the money in separate envelops or jars marked housing, transportation, obligations, etc.

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