How to Create an Expenditure Plan

Creating a spending plan can help keep your finances on track.

A spending plan helps you manage your personal finances and develop a budget that will allow you to live within your means. Although the initial process may seem intimidating, it's more manageable when you break down the process into steps. Whether you use a spreadsheet, online program or smartphone application, an expense plan provides you the information you need to create an effective, long-term financial plan.

Difficulty:

Moderate

Instructions

1. Record every expense you make for the next 30 days. Include discretionary purchases such as gourmet coffee, snacks, reading material and entertainment expenses. Keep a notebook to record your cash purchases and save all of your receipts.

2. Calculate your monthly net income. Net income is the money that remains after payroll taxes and any contributions for insurance, savings or retirement funds. If you have more than one source of income, figure each source individually and note whether you are paid weekly, biweekly or once each month.

3. Compile a list of your fixed monthly expenses. Record your rent or mortgage payment, insurance premiums, auto loans, cellphone contracts and membership fees. Include medical expenses and medication costs if they are a recurrent monthly expense.

4. Determine the average amount of each of your variable expenses over the past six months. Food, utility bills, transportation costs, clothing, household maintenance and repair costs are examples of variable expenses. Figure your monthly expense for quarterly or semiannual premiums and list that amount as a recurrent monthly expense.

5. Calculate the total of your fixed monthly bills and variable expenses to determine your basic monthly expenses. Subtract these from your net monthly income. The money remaining represents the amount that is available for discretionary spending.

6. Review your monthly purchases for non-essential items and services. Establish an amount you can afford to spend for each category, such as personal care services, eating out, electronics and media. Add these amounts to your spending plan.

Tips & Warnings

• If your monthly expenses exceed your net income, look for ways to reduce your expenses.

• Allocate a set amount of income each month for a savings plan.

References

• Bankrate.com: Savings: Making a Money-Smart Spending Plan
• The Wall Street Journal: How to Make a Spending Plan
• DaveRamsey.com: Monthly Cash Flow Plan

Resources

• Kiplinger: A Budget for Today and Tomorrow