Your Spending Plan

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• Track where your money goes each month and year.
• Avoid wasting money.
• Prepare for unforeseen expenses.
• Save and invest for long-term goals.

Creating A Spending Plan

• Total your income and subtract your expenses. Gather pay stubs and other income statements, check registers, bank statements, credit card statements or bills and receipts. Divide your annual net income by 12 to determine monthly net income.
• Use the Budget Work Sheet to record the amounts you plan to spend for the month. Financial planning professionals recommend targeting at least 10 percent to 15 percent of net income for savings.
• Monitor your spending. Keep written records of your purchases and payments, and record the amounts you actually spent for the month.
• Review your plan. Compare what you actually spent to the amounts you planned to spend. How well did you do for the month? Did you have extra money (net cash flow) or did you borrow money by using a credit card? Look for areas that require special attention and reduce or eliminate expenses as needed. Review your spending plan at least once each month.
• Adjust your plan. Adjust expenses to reach your financial goals.

Improve Your Cash Flow

• Switch to a no-fee checking account.
• Switch to a low-interest, no annual fee credit card. A credit card with a $1,000 balance charging 21 percent interest compounded monthly costs $231 annually. A credit card charging 9.5 percent interest costs only $99 annually.
• Switch to a less expensive phone plan.
• Use a less expensive Internet service provider.
• Dine out less often.
• Monitor your entertainment expenses. Cut back on cable channels.

In addition, you may need to change your spending habits.

• Save for purchases you cannot fit into your budget. Stop charging unless you can pay your credit card balances each month.
• Do not buy something not included in your budget, unless you can substitute a planned item for it.
• Wait for sales and use coupons.

Once you have learned to manage your expenses and eliminate debt, you will have money to save and invest.