Things You'll Need:
- Envelopes
- Receipts
- Pen and paper
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Step 1
First thing you should do is make a list of your general monthly expenses. Do not include utilities or residential payments, such as a mortgage or your rent. Paying for your utilities can of course be improved with good habits. However, you cannot directly control or predict how much you’ll end up paying each month for it. Also, a mortgage or rent payment is typically consistent, therefore there is no reason to make a spending plan for it since you can’t lower it in most cases. What you should list should include items or products you pay for on a regular basis and entertainment expenses, such as eating out at a restaurant or going to the movies. These are the things you can directly change!
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Step 2
After you’ve listed your expenses for entertainment and other duties like buying food, it is time for you to take out the receipts! You should always keep receipts for at least a month’s time, that way you can accurately record how much you spend in a given month for these kinds of activities. Write down how much you’ve spent on average in the past month or two on everything on the list.
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Step 3
Next, figure out where you may be able to cut down on your spending. The whole point of a spending plan is to prevent you from overspending, but it is also to help you save money in general as well! You may find that your grocery bills are bloated with overpriced TV dinners and snacks, when you could be spending less on something healthier. You may also find that going to the movie theatre every week may be extremely costly and buying or renting a DVD and microwaving some popcorn may be the most cost-effective solution.
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Step 4
Regardless if you found something to cut down on or not, put a budget on each of the expenses on your spending plan. Make sure you are comfortable with the budget you put on each item, as that total will be non-negotiable!
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Step 5
Finally, set aside the amount you placed as the budget for each expense in separate envelopes. This money, and only this money, will be used to pay for the things you have mentioned in your spending plan. You will not be adding more money to any envelope until the end of the following month. Discipline yourself, and learn to ration the money throughout the month for each item on the spending plan. This will help to teach you discipline and good habits in spending money! Although you should seek to fulfill your spending plan goals each month, feel free to assess the spending plan on a regular basis according to your financial goals.
