How to Start a Spending Plan

Just as you wouldn't trust your money to be secure in a financial institution that didn't have a budget, you shouldn't trust your future to be secure without a budget of your own.

Using the Budget Worksheet, assign each budget item a number from 1 to 4. 1 is the highest priority, and 4 is the lowest. It doesn't matter right now what the dollar amounts are. You MUST think about your priorities in order to manage your money successfully. Think about each expense and what would happen if you just decide to spend less on it or eliminate it.

Prioritizing Financial Obligations

#1 Priority: Financial obligations that you have incurred that are completely controlled by someone else (ex. mortgage/rent, car payment, child support, insurance, other fixed payments – a payment that doesn't change from month to month).
#2 Priority: Are mostly controlled by someone else, but you do have some control over the cost (ex. utilities, groceries, gas, etc).
#3 Priority: Are mostly in your control. These could be cut out, but only as a last resort (ex. cable TV, cell phone, internet, etc).
#4 Priority: Are completely controlled by you. We also call them Quality of Life expenses. While these expenses may be easy to eliminate if you don't have the money, you should only eliminate them for a short time (6 months or less) unless you substitute something that is free or very low cost (ex. entertainment, gifts, vacations, hobbies, etc).

Next, fill in a monthly amount for each category in which you spend money. Multiply weekly expenses by 4, and divide yearly expenses by 12. Now, compare income to expenses. Add all your monthly expenses and subtract them from your monthly take-home income. Is there money left? Is more going out than coming in? The goal is to balance your budget by making spending equal to income.

Time to use those priorities! If you have money left over, plan for it to go into savings. If there are more expenses than income, begin to reduce or eliminate expenses. Start with number 4s. Does reducing them do the trick? If not, eliminate them one by one until the budget is balanced. If the budget is still not balanced, continue on to the number 3s. Think about ways you may be able to increase your income. If you find yourself with no alternative but to begin eliminating number 3s, it's time to call CCCS for some help.

Now that you have balanced your budget, you need a way to make it a usable tool. Here is a very simple way to control your money:

Divide each expense by the number of paydays in a month (1, 2 or 4).
Money for things that come up more frequently than monthly should be kept in cash.
Money for things that come up less frequently than monthly should be put in a savings account.
The money that is left is for the bills—the monthly expenses—and should be put in a checking account. This money is set aside for other people. Think of it as their money, not yours.

If you do this, every payday will be the same. After one month, you should have enough in your checking account to pay all of your bills. After one year, you will have saved enough to cover your yearly, seasonal and irregular expenses.

Are you past due on things? If your budget is balanced, but some things are past due, you may be able to catch up by TEMPORARILY cutting back on less important expenses to pay more each month on the past due bills. If that doesn't seem possible, contact CCCS. We are here to help you.