Create your detailed spend plan
By now you should have tracked your expenses for at least two months, first to provide the basis for your initial spend plan and second when you implemented, monitored and hopefully revised your spend plan. If you haven't done so yet, take a serious look at your spend plan results. Did you manage to pay all your bills? Are there any categories that you continually had to adjust? Are there categories that you allocated too much cash for? Based on the overall results, can you identify changes that should now work better? If you're still not sure, or you had trouble paying all your bills, then you should consider creating a new initial spend plan and repeating the entire process. If you do feel fairly confident that you have a better handle on your spending, then you are ready to create a detailed spending plan.
The purpose of the initial plan was to ensure that you could pay your routine bills and expenses every day for a month. Now its time to consider other expenses that occur throughout the year, such as automobile insurance premiums, birthdays, Christmas, etc., and start learning how to save enough each month to pay those expenses when they come due. This means it's also time to create and implement a longer-term plan, hopefully for at least the next three months.
Obviously, the process you will use to create this detailed plan is the same one you used for the initial plan. It's just going to have a little more detail. For this reason, this section won't repeat all of the steps from the initial plan. In fact, you can use the same type of worksheets or calculator that you used for the initial plan. Now you will just create one for each of the next three months and address the need to save for future expenses. Therefore, the process will be as follows:
- Print or prepare three monthly planning worksheets
- Enter appropriate amounts for each expense category
- Include the savings needed to pay future expenses
- Add your income in the appropriate columns
- Verify that your expense totals don't exceed income
- Implement the plan
- Continue to monitor your cash flow and adjust your plan accordingly
As you will note, the key difference in this process is the inclusion of savings to cover future expenses. Some common expenses are automobile registration and insurance, magazine and newspaper subscriptions, haircuts, routine medical payments, and occasional costs such as vacations, birthdays, Christmas, etc. Figure out how much you should be saving every month to pay these bills when they are typically due, and enter this amount in the appropriate category for the last day of the month.
- Example #1: Your automobile insurance is $600 every 6 months. Even though your next payment is due in 2 months, you want the spend plan to reflect the required savings of $100 every month ($600/6). The purpose here is to create a plan that outlines what you should be saving on a monthly basis, and to see if you can save the $100 this coming month!
- Example #2: There are 6 birthdays throughout the year for which you normally spend $50 each. Therefore, the total expense is $300 every 12 months, and that equates to a required savings of $25 per month.
- Example #3: You normally spend $600 for Christmas. For planning and saving purposes, this equates to $50 per month.
When you believe that you have a workable plan for the next three months, then it's time to commit to following it. You can use the same type of tracking worksheets you used last month. If you are using Excel, there is a three-month tracking worksheet that will help you monitor your continual progress for the entire three-month period. Remember to track your expenses, compare them to your targeted amounts, and adjust your plan accordingly. When you successfully complete this three-month period, and have managed to save for future expenses, then it's time to begin addressing your future goals (emergency funds, retirement, college, new house, etc.) as part of an overall money management plan.
Next section - Create a money management plan