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Spending Plan

A spending plan is a powerful tool that will help you manage your money. It does not have to be complicated, but it must include all of your income and expenses. Probably the hardest thing about a spending plan is having the discipline to actually follow the spending plan you make. 

Income includes money earned from your job, but it should also include any other sources of money you receive whether it is a gift, an allowance, or interest from savings or investments. Expenses fall under one of three categories:  

  • Fixed – You pay the same amount every month, like your rent or mortgage

  • Variable – You pay every month but the amount changes, like your utilities or credit card bill; and

  • Periodic or occasional – You pay your car insurance quarterly, or you pay for new tires for your vehicle

One fixed expense in any spending plan should be savings. The first expense you should plan for is the PYF expense. PYF means “pay yourself first”. Even if you can only add $5.00 a payday to a savings account, by paying yourself first, you are making saving money a priority and saving for a future goal. It is better to consistently save $5.00 a payday than to put so much money in savings that you cannot live without the cash every month.

Budgeting Video

Wants versus needs - the magic of enough

To succeed with a spending plan, you should set goals for yourself. Goals can either be short-term or
long-term. Goals can also include both needs and wants. Needs are essential to your daily life. Food, clothing, shelter, transportation – these are all essential to living. Wants are those things you desire to enhance your quality of life such as the newest electronic gadget, a bigger television set, new accessories for your vehicle, or an exotic vacation. While wants are fun and exciting, they are not necessities to your basic living. However, by setting money goals, you can achieve some of the “wants” of your life along with the “needs”. Remember, you will never get to where you are going if you don’t know where you are headed!  Sticking to a spending plan takes commitment. Without commitment, there are only promises and hopes, but no plans.

Using a spending plan is not about depriving yourself; it is about preparing for your future. As your income grows and your priorities change, your spending plan will change. What is the one thing or activity you cannot see yourself doing without?  Perhaps you think you need a large cup of gourmet coffee from your local specialty coffee shop every day to get your day started. That cup of coffee will cost you about $3.00 including tax. While that may not seem like a lot of money, if you buy a gourmet cup of coffee every day for a month, you will have spent $90.00. Making your own coffee at home would be much less expensive, and you would have saved $1080.00 by the end of a year.

Living like a student

Living like a student means living conservatively, making wise money management decisions, and possibly foregoing some of the luxuries to which you have become accustomed. If no one is helping you with expenses, you may need to make decisions about what is more important. Do you upgrade your phone every two years because you want the latest and greatest?  Think about holding on to the older version for an extra year or two to save money. Eating at home or in the college cafeteria is less expensive than eating at the local restaurants. Do you need the new car you saw advertised?  Will that $450 monthly payment plus insurance be better utilized in other living expenses such as utilities or rent?  Look for free or inexpensive sources of entertainment like game nights, campus activities such as plays, or cookouts with friends. If you live like a student during your college days, you will not have to live like a student when you leave. Making sound financial decisions in college saves you from financial disaster when you graduate.

Developing a plan

How do you start a spending plan?  The first step is to track how you actually spend money for at least a two-week period. Visit your friendly App Store and download a free app that will help you keep up with your daily expenses on your Smartphone or tablet.  Try these apps which are free, and iOS and Android compatible - Good Budget, Mvelopes, Bill Guard, or Expesify.

Record every purchase regardless of how small it is.  After you have tracked your expenses for a two-week period, review and evaluate how you spent your money.  Consider the 50-30-20 spending plan.  Fifty percent of your money should be used for basic needs such as rent, utilities, child care, groceries, etc.  Thirty percent of your money should be used for wants such as clothing, cell phone, etc., and twenty percent should be dedicated to savings.  

Envelope Method

One of the most popular ways of tracking your expenses for your spending plan is the envelope method which is as simple as buying a box of letter-sized envelopes. On each envelope, write the name of the expense you have. For example, “groceries” might be one envelope. Another envelope might be labeled “gas for car”. When you receive your first paycheck of the month, allocate a certain amount to the envelope labeled “groceries”. If you decide that $150 of that paycheck should be spent on groceries, put $150 cash in the envelope. When you go to the store, take your envelope with you. If your grocery bill is over $150, take some items out of your cart. If it is less than $150, put the extra cash in your “groceries” envelope. Do not take any money out of your “groceries” envelope for anything except food at the store.

Use the envelope system for items that tend to be spending plan busters. Some common examples are food (grocery store), restaurants, entertainment, gasoline, and clothing. When money runs out of any envelope, you do not spend any more money on that item until you get paid again.

If you finish the month, and you have money remaining in any envelope, congratulations! You came in under your spending plan, so reward yourself (within reason). You might decide to go out to dinner or simply use the extra money to increase the funds in one of your envelopes for next month.

The key to success with the envelope method is to not borrow money from other envelopes. Because the envelopes are easily accessible, it is tempting to borrow cash from one envelope to fund another activity. Remember the very purpose of the envelope system is to teach you discipline and help you curb your spending. 

Planning for emergencies

Everyone needs an emergency fund. It is an account you use to set aside funds for an emergency, such as the loss of a job, an illness, or a major expense. Deciding how much you need in your emergency fund is hard. Perhaps the best is what you’re most comfortable with.  No one knows your financial status better than you do. Some experts say you should save three to six months’ worth of basic living expenses. Others say that trying to save that much money is too difficult to do and recommend that you have anywhere from $1,000 to $3,000 set aside.

Building your emergency funds

However you choose to build your emergency fund, it should be readily accessible in case an emergency occurs. Any money you place in this account should only be used for emergencies. The following are ways to build an emergency fund:

1. Have a yard sale and place all the proceeds into your emergency fund.

2. Take a part-time job. Then put all the proceeds into your emergency fund.

3. Treat funding your emergency fund like paying a bill. Auto debit a set amount each payday to your emergency fund.

4. Forego some luxury you can live without.

5. When you pay off a bill, keep paying that same amount… your emergency fund.

6. Put your tax refund into your emergency fund instead of going on vacation.

7. Once you’ve fully funded your emergency fund, place your emphasis on other goals such as saving and investing for retirement, or saving for your children’s college education.

8. Periodically re-evaluate your emergency fund.

Remember, an emergency fund is only for emergencies. Failing to prepare for emergencies might mean you resort to paying the unexpected bill with a credit card. 

Spending Plan Tools

I. Semester Info
Number of months in semester
II. Semester Expenses
Tuition and fees $
Books $
Deposits $
Transportation/Moving $
Total   $
Per month   $
III. Semester Income
Family Contribution $
Student Loans $
Other Financial Aid (Grants/Scholarships/Gifts) $
Total $
Per Month $
IV. Monthly Income
Estimated monthly salary $
Minus taxes (approx. 28%) $
Net income $
Other income $
Total $
V. Monthly Expenses
Rent $
Combined utilities $
Groceries $
Auto expenses $
Student loan payment(s) $
Other loan payment(s) $
Credit cards $
Insurance $
Medical expenses $
Entertainment $
Miscellaneous $
Total $
VI. Discretionary Income
Total Monthly Income $
Total Monthly Expenses $
Monthly Total $
Semester Total $
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