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Budgeting:
Setting
Up and Implementing a Monthly Spending Plan
In preparation for setting up a spending-plan, list on a separate
sheet of paper all sources of monthly income including gifts,
bonuses, tax refunds, cost of living increases, dividends and
interest income, etc. Note the frequency of each source. Total-up
all sources of monthly income.
On
separate sheets, list all monthly expenses. Expenses are separated
into two categories: fixed and flexible.
A
fixed expense is one that remains the same each month such as
a mortgage or rent, a loan payment, insurance premiums, an amount
of money set aside each month for such things as gifts, motor
vehicle maintenance or clothing and uniforms, for example. Total-up
fixed expenses.
Flexible
expenses are those which are directly controlled. These include
household and grocery items, utilities, entertainment, meals
away from home, out of pocket expenses, etc. Total-up flexible
expenses.
All
expenses are totaled and then subtracted from the total income
figure for the month. Next, divide total expenses by the frequency
of income or the number of paychecks the household receives
each month. This tells you how much to set aside from each paycheck
. (Note: If the expense total is greater than the income total,
you are out of kilter financially. Begin to prioritize expenses
by noting every expense for which credit will be utilized in
order to keep in the plan. Then ask yourself if you want to
borrow every month for these expenses.)
Enough
money to cover fixed and some flexible expenses from each income
period should be kept in reserve in a special expense account.
This reserve method for expenses from each income period is
utilized to avoid the paycheck to paycheck routine. Don't take
the reserve expense checkbook shopping. Review the spending-plan
each income period and up-date year-long spending plans quarterly.
Click here for a printable budgeting
worksheet
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