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A)                           CREATE A SPENDING PLAN


If your monthly payments exceed your monthly paycheck, you likely will be left weeks, months, or years short of your financial goals. Organize your income and expenses.  Then develop a spending plan.  A spending plan helps you get to know your money flow.  Money flow is defined as money earned and money spent.  Keep it simple.


Create two charts.  One chart is for your income.  The other chart is for your expenses.  Divide expenses into two categories.  The first category is for fixed expenses such as mortgage, rent and/or car payments.  The second category is for flexible expenses such as utility bills, groceries and gas.


For a one-month period record your income and all your expenses, both cash and credit.  Include all expenses including your coffee and doughnut purchases and fast food purchases.  At the end of the one-month period total what you spent your money on and compare it to your income.


The results of this one-month test may surprise you.  You could be spending much more than you had previously thought you were.  The next step is to organize your bill paying and review your discretionary spending.  Look to areas where you can cut back on discretionary spending.  By reducing your discretionary spending you can fund your emergency savings and work to develop and execute on a successful “debt pay-off plan”.


Setting up a Budget


What is a budget?


A budget or spending plan usually makes you think of the image of a tired person scribbling numbers on a notepad or ledger sheet.  This image does not have to become a reality.  An actual budget is simple.  Total up the amounts that currently come in and go out.  A projected budget is an expectation of future monies coming in and going out.  Everyone who has money coming in and going out has an actual budget.  However, in most cases, people just don’t put the budget in writing.  The “in writing” part separates the prepared financially educated individual from the rest of the pack.


The Written Budget


A written budget is a piece of paper that has income and expense numbers on it.  It is used to keep you informed of what comes in and what goes out each month.  It works best when it is short and written on a computer.  Microsoft Money or Intuit’s Quicken are software programs that help the user to keep track of his or her money.  Both programs are user friendly and affordable.


How to Start


Use a goal sheet to set financial goals.  The goal sheet should in clued a list of how much comes in and how much goes out each month.  You should stay aware of these amounts.  The information on this goal sheet is important to you understanding how you can succeed.


Estimated Budget


The Internet has resources that can assist you.  Budget calculators are helpful.  Many sites managed by banking and financial institutions provide information and budgeting tools.


To determine income you can simply look at a recent pay stub to find income.  You should use your net salary, which is your take-home pay after taxes.  If applicable, you should also include any pension or retirement benefits.  Estimating a budget on a monthly basis is the most efficient way.  If you are paid on a weekly basis, multiply your weekly salary by 4, because most months are four weeks.  If you are paid bi-weekly, or if you are paid twice during a month, multiply your salary by 2.  Another way to more accurately estimate your monthly salary is to multiply your weekly salary by 52 (the number of weeks in a year) and divide by 12 (the number of months in a year).


You then should look at where your money goes each month.  List a column of your monthly expenses and a column for the amount of the monthly expenses.  Total up the Amount Column to determine your monthly expenses


Monthly Expenses                                                                                                          Amount


Category:                                       Consisting of:

Housing/Dwelling                        Rent or mortgage, Utilities

Transportation                             Car Payments, Gas, Public Transportation

Insurance                                      Auto, Life, Health, Home or Renters

Food                                               Groceries, Takeout, Dining Out,

                                                       Alcohol, Tobacco, Household Items

Health Care                                   Medical and Dental Expenses

Clothing                                        Clothes, Shoes, Laundry Expenses

Education                                     Tuition, Student Loans, Training

Retirement Plans                         IRA and 401(k) Retirement Fund Contributions

Entertainment                             Hobbies, Vacations, Movies

Charity                                          Gifts and Donations

Miscellaneous                              All Other Expenses including those paid with

                                                       Credit cards


Actual Budget


If you have a computer, software programs such as Microsoft Money or Quicken are excellent tools to assist you.  If you do not have a computer or these programs you can use your checkbook and credit card statements to calculate the numbers.  To make the process easier, you should round the numbers to the nearest dollar amount.  By putting your budget in writing you can view your income and expenses together.


Projected Budget


A projected provides a structured guide for future spending.  Use an expense sheet to list your goals for your expenses.  Make notes next to each expense with ways you will attempt to reach your goals.  You should want to make notes regarding methods to reduce discretionary expenses.  This will help you to attain more financial freedom quicker.







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