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Create a Spending Plan

After listing your financial goals, a good way to start taking control of your financial situation is to develop a personal spending plan, also known as a budget. Following a spending plan:

  • Helps you reduce the anxiety of not knowing whether you have enough money to pay your bills when they are due
  • Gives you a sense of control over your money, rather than letting money have control over you
  • Helps you build assets that will improve the quality of life for you and your family

Why Create a Spending Plan?

A spending plan is step-by-step plan for meeting expenses in a given period of time. It is all about choices – choosing how to use your money. Knowing what your income and expenses are every month will help you take control of your financial situation.

Spending Plan Steps

There are four steps to preparing a spending plan:

  1. Keep track of your daily spending.
  2. List your monthly income and expenses.
  3. Find ways to decrease spending.
  4. Find ways to increase income.

Track Daily Spending

Understand where your money goes by tracking your spending.

Do you know where your money goes each month? It is common for people to spend all the money they make and not have anything left over to save for their goals. Many people say that they do not have anything to show for their hard work at the end of the month.

Use a personal spending diary.

How often have you taken $20.00 or $40.00 out of the Automated Teller Machine (ATM) and, at the end of the day, not known where it all went? If you want to be in control of your money, you must understand where your money goes. One way to do this is to keep a personal spending dairy to record everything you spend. You can use this information to track your spending over a period of time, say a month, so that you can see how you are spending your money.

Determine Income and Expenses

The next step in preparing your personal spending plan is to list your monthly income and expenses. Income is money that comes to you from:

  • Wages
  • Self-employment income
  • Public assistance, which might include Temporary Assistance for Needy Families (TANF) or Food Stamps
  • Child support or alimony
  • Interest, dividends, or investment income
  • Social Security or other federal benefits
  • Other sources, like tips

There are two categories of income: gross income and net income.

Gross income

Gross income is your total income without deductions. For example, an employer may tell you your salary for a new job will be $12,000.00 per year. The $12,000.00 per year is your gross income.

Net income

Net income is gross income minus deductions, such as Social Security and other taxes. This is also called your take-home pay.


There are two categories of expenses: fixed and flexible.

Fixed Expenses

Fixed expenses do not change from month to month. Typically you do not have control over how much you pay. For example, rent or a fixed loan payment.

Flexible Expenses

Flexible expenses often change from month to month. You may have some degree of control over how much you pay. For example, if you decide to lower your thermostat during the winter to save on heating costs, you will pay less than you did the month before.

Remember, it is always a good idea to think of savings as a fixed expense. Pay yourself first automatically allocating a percentage or sum of your income to go into a savings account.

Monthly Income and Expense

The monthly income and expense worksheet will help you determine how much money you have coming in, how much is going out, and whether or not you have enough income to pay your bills and expenses each month.

Remember to save money for large expenses that you may only pay once or twice a year, such as property taxes or car insurance premiums.

Income Expenses
Total Income   $ Total Expenses   $
 Wages   $  Mortgage/Rent   $
 Public Assistance   $  Property Taxes/Insurance   $
 Child Support/Alimony   $  Cable/Telephone/Internet   $
 Interest/Dividends   $  Cell Phone   $
 Social Security   $  Loan Payment   $
 Other   $  Car Insurance   $
 Other   $  Health Insurance   $
 Child Care   $
Flexible Expenses
 Savings   $
 Water   $
 Electric   $
 Gas/Oil   $
 Groceries   $
 Eating Out   $
 Transportation/Gas   $
 Credit Cards   $
 Day Care/Elder Care   $
 Car Maintenance   $
 Education   $
 Personal Expenses   $
 Donations   $


Decrease Spending

If your expenses total more than your income or if you want to save more money, you need to decrease, or cut back on, spending. Decreasing spending increases the amount of money you have left each month.

Figure out which of your expenses are your “needs” and your “wants.” The needs are expenses that are absolutely necessary, such as your housing, utilities, clothes, food, and transportation. Consider ways to save on your necessities. And, find ways to cut back on your wants – the optional purchases.

Tips to Help You Decrease Spending
  • Develop and following a spending plan.
  • Carry small amounts of cash to limit your spending.
  • Consider keeping your credit cards in a safe place at home – and perhaps away from your computer to make it harder to make impulsive purchases.
  • Use coupons to save money and only shop for items you really need.
  • Use a grocery shopping list to prevent impulse buying.
  • Take your lunch to work instead of eating out. Don’t be tempted by the vending machine!
  • Pay your bills on time to avoid penalties.
  • Check what subscriptions or other services you may be paying for every month. Ask yourself if you still need them or if you can get a better deal.
  • Use direct deposit for all sources of income.

Find Ways to Increase Income

Besides decreasing your spending and obvious ways to increase your income, like getting a second job, there are other options for increasing your income that you might not have considered. For example, you may benefit from federal tax credits. Visit to learn more about federal tax credits. Or perhaps you can sell household goods you no longer need or plan to use.

In addition, education or additional training may help you increase your career prospects by potentially helping you qualify for a promotion at work. These are all good ways to increase your income. Can you think of any additional ways you can increase your income?

Keep Accurate Records

To successfully implement a spending plan, you must keep accurate records. There are many different tools you can use for your spending plan.

  • Keep records in a safe place.
  • Organize your files so it is easy to find important financial information.
  • Keep your tax records for at least three years.
  • Pay bills online or mail checks to pay bills at least one week before they are due to avoid late fees.
Budget Tools

There are many different tools you can use to document your budget. Several budget tools are listed below.

Expense Envelope System

Although it is safer to pay bills online or by check, this tool is useful if you decide you still want to pay your bills in cash each month. Label an envelope for each expense category (rent, gas, food) and write the amount and due date under the label. Keep the envelopes in a very safe place until you make the payment.

Divide the income you receive into each envelope to cover the amount listed on the envelope. Pay bills right away and only take those envelopes you are going to pay that day. This way you are not tempted to spend the money on something else.

Computer Spreadsheet System

If you have access to a personal computer you can create your own spreadsheet with columns for income sources, income dates, expenses, and expense due dates. At the end of the income and expense columns, enter the formula to total each column.

Free personal finance tools are also available online and on smart phones and you can purchase personal finance programs. Once you set up the system, updating information is quick and easy. It is important to enter transactions frequently to track your financial position.

Budget Box System

The budget box is a small box with dividers for each month, with one divider for each day of the month. When you receive a bill, check the due date and place it behind the divider that represents the bill’s due date. As you receive income, pay your bills right away so you will not be tempted to spend your money on something else. When mailing bills, you should allow time for delivery.

Monthly Payment Schedule or Calendar

These tools let you record in advance when you will receive income and when bills are due. Write the amount of your net pay on the calendar date you will receive it. Do the same with your basic necessities and high priority expenses so you can ensure that the funds are available to pay these expenses on time.

Assign dates on the calendar to pay your basic necessities and high priority expenses. Each month, cross out expenses listed on your calendar as you pay them. This ensures the payment has not been forgotten.

When There Are More Expenses Than Income

If your daily spending diary or monthly income and expense worksheet shows that you have more expenses than income, there are ways to get out of trouble. But remember, everyone has different priorities. You will have to make the decisions that are right for you.

Which payments do you think you should make first if you do not have enough money to pay all of your bills? Generally speaking, it is most important to pay your necessary household expenses first: rent or mortgage, utilities, and food. Think about the health and safety of your family when making these types of decisions. You always want to have a roof over your family’s head, water and electricity, and food on the table. These are basic needs. Therefore, to avoid foreclosure or being evicted, you may need to pay your rent or mortgage before paying other bills, such as a telephone or credit card bill.

Many utility companies have programs to lower your bill if you qualify. If you think you need assistance, contact your utility company to see what programs it offers. You may also be able to receive assistance from local, state, and federal agencies and organizations.

  • Pay your necessary household expenses first, like rent, mortgage, and food.
  • Think about the health and safety of your family when prioritizing bills.
  • Seek assistance to help cover expenses.

If you can your monthly household expenses but are having trouble paying all of your bills, consider:

  • Paying off the loan with the highest interest rate first to save on interest payments.
  • Talking to your creditors. Your creditor may be willing to reduce your payments or change the terms to accommodate your situation.
  • Getting credit counseling. You might contact a reputable credit counseling organization if you are not disciplined enough to create a workable spending plan and stick to it, cannot work out a repayment plan with your creditors, or cannot keep track of mounting bills.