Spending Plan - Planning To Action

Now that you know where you would like to go it is time to figure out how to get there. While each of us may find a different route to achieving our personal financial goals, true success always comes down to being completely honest with ourselves and holding ourselves accountable. Ouch! Yes, I can admit that I am often my own worst enemy, but even if we suffer setbacks we will be OK if we keep our goals in front of us to make sure we can get back on track quickly.

So, how can you build a spending plan? The first step is to clearly identify your regular monthly expenses. These expenses usually come in three forms. First you have regular expenses like utilities, child care, etc. Then you have variable monthly expenses like meals out, auto repairs, entertainment, etc. Finally, you have debt service obligations like your mortgage or auto loan payments. It is usually quite simple to document your regular and debt service expenses. It is a bit more difficult to identify your variable expenses. However, the variable expenses usually are the major cause in ending with more month than paycheck!

The second step is to document all of your regular monthly expenses and your debt service obligations. You can use something as simple as a sheet of notepaper or as detailed as a spreadsheet or money management program like Quicken.(I like to use a spreadsheet so that I can quickly see what happens if I make changes in income or expenses to my spending plan.)

The next step is to document all of your variable expenses. This is the most difficult and can take considerable time to complete. Some experts suggest that you track your variable expenses for up to 90 days, but in many cases you have a good sense of where you are spending your money if you track your expenses diligently for at least a week. I would probably suggest that you will have an accurate understanding of where your money is going if you track your variable expenses for at least 30 days. There are a lot of ways to track your expenses including notes on a notepad, keeping all of your receipts and adding them up by expense category or using personal financial management software like Quicken. (I prefer to use Quicken, but many folks find this to difficult to maintain.)

To make this process simple there are a variety of free online tools like Geezeo, My Spending Plan , and Quicken Online. Some tools like Mint make it so simple that it allows you to download your checking account data and automatically categorizes your expenditures. While I can not recommend any of these particular tools, I have heard positive comments about all of them. If you don’t like these there are dozens of free tools to help you understand your spending and build your spending plan.

Now, using the tool of your choice it is time to start tracking your monthly expenditures. Remember to be honest with yourself and also be aware of how you might actually reduce your spending because you don’t want to write down some of the things that you would normally spend your money on. Do this for 30 days and check back in at the Ask Gene blog for our next installment on Building the Plan and… making the Tough Choices!