Spending plans or budgets, it doesn’t really matter what you call them, they both mean the same thing, but lets call it a spending plan as I think that the word “budget” has a very negative sound, and makes you think of it as a penny-pinching.
When in fact, spending plans should be seen as positive motivational tools, which help you plan for long-term financial achievements, but still allowing you to indulge now and then.
3. What is the “envelope” system?
4. “Recommended” guidelines, facts and figures
5. Impulse and compulsive spending
Attachment #1 - Ways I can save money
Attachment #2 - Tracking my daily spending worksheet
Attachment #3 – Spending Plan Monthly Worksheet
The dictionary definition’s:
“budget”
An itemized summary of estimated or intended expenditures for a given period along with proposals for financing them: submitted the annual budget to Congress.
A systematic plan for the expenditure of a usually fixed resource, such as money or time, during a given period: A new car will not be part of our budget this year.
The total sum of money allocated for a particular purpose or period of time: a project with an annual budget of five million dollars.
“budgeted” “budgeting” budgets”
To plan in advance the expenditure of: needed help budgeting our income; budgeted my time wisely.
To enter or account for in a budget: forgot to budget the car payments.
However, we all know that when put into your day to day life, it is a little bit more complicated than that – agreed?
Spending plans, are derived from your net income versus your living expenses, and the amount left will either be either a positive cash flow or a negative one.
To properly analyze your spending habits, everyone in the house hold, needs to keep track of what they spend, you can do this by using attachment #2.
Write down EVERYTHING that you spend your money on – that packet of gum, the morning news paper and, of course, those soda’s & coffee’s J
At the end of each week, total the columns up and keep the records safe, begin a new sheet for a new week, or when it becomes full.
At the end of the month (or on the end of the 4th week) gather all the completed records and go through them, you will begin to see where and what your spending habits are. Don’t stop now; continue to complete the records on a daily basis.
Please note: DO NOT at any time during this exercise; apportion blame on anyone – that will only have negative results.
Now that you’re beginning to gather all the information, you can start to look at where you can begin to save money. Ask yourselves and the family:
Do I really need to buy sodas from the machine at work at 50cents a can?
Do I need to get lunch from the deli 5 days a week?
Do the pets need to have that expensive brand name pet food?
Maybe I could phone Aunty Sally one hour later when it’s the cheaper rate?
Maybe we could eat out one night less a week/month?
It’s only when you can identify a pattern, can you begin to save effectively.
As you probably noticed, I have used the “save” try not to use the word “cut back”, like the word “budget” it has a negative connotation, and spending plans are supposed to be a positive method in order to achieve your goals.
To do your spending plan, you need to ascertain what your actual net income is. This is the amount after your deductions (taxes, insurance, pension contributions etc)
This could be money that you received from the following:
Your job(s)
Child support
Alimony
Social security
Pension
Other
These expenses are what you are paying on a daily/weekly/monthly or annual basis:
Mortgage/rent
Utilities
Auto payments
Insurances
Gas
Loans
Food
Entertainment
Educations
Credit card payments
Clothes
Etc
After you have completed your spending plan, and compared your net income against your living expenses. You will be left with either a positive (money left over) or a negative (spending more that your net income) cash flow.
We all think we know what we spend our money on, but only by doing a detailed spending plan, can you can see accurately where your money is going.
Disposable income or positive cash flow
Disposable income is also known as positive cash flow and it is the surplus money that you are left with, after deducting your net income from your living expenses.
Example:
|
Monthly Net Income |
$3,000 |
|
Minus the Monthly Living Expenses of |
$2,500 |
|
Leaves a Disposable Income or positive cash flow of |
$500 |
This disposable income could be used for savings, emergencies, vacations etc
A deficit or negative cash flow is when your monthly living expenses are more than your monthly net income, which leaves you with a negative.
Example:
|
Monthly Net Income |
$3,000 |
|
Minus the Monthly Living Expenses of |
$3,300 |
|
Leaves a Deficit or negative cash flow of minus |
$300 |
This means that every month, unless you look at where you can money, you will short by $300. Having a detailed, well-planned spending plan can help you avoid a deficit.
It is never easy to discuss money issues, but it is something that we all need to do.
In the world today, with dual incomes, blended families, childcare costs, eldercare costs, multiple banks accounts, savings and debts, it makes tracking your spending and discussing money even more essential.
Here are some simple rules to try to help you prepare for your discussions:
Set ground rules for your discussions
Leave the judgments about who is right or wrong out the discussion
Identify common problems
Agree on common solutions
Establish common goals
Decide on which things are important to the entire household
Remember: if you start to apportion blame in these discussions – then you are lost.
Have a “family meeting” get all the family around the dinning table – including the kids, and be honest and open about the situation, unfortunately, as we all know, the truth often can hurt.
Well, that’s a good question and only you can answer it, it is easy for me to say in this newsletter “yes, you need to involve the kids” but I am not in your position.
Kids aren’t stupid; they know when something is wrong.
Be honest with them, tell them that you have to make changes in the family’s spending habits and that you need their help.
Don’t underestimate your kids, ask them to contribute to cutting expenses, you might be amazed at what they come up withJ Use attachment #1 to this newsletter.
This system is so simple to do and it has been around for years. I personally know several families that use this system – and for them it works!!
The only problem with the envelope system in today’s society is that it revolves around using cash, however, IF you become disciplined there is no reason why you can’t substitute the use of cash with a check or automated funds transfer for certain transactions, such as mortgage/rent, auto payment etc
To do the envelope system, you need to set up several different envelopes, each one identified for a different expense:
Mortgage/Rent envelope
Utilities envelope
Food envelope
Auto payment envelope
Eating out/Entertainment envelope
Lunch envelope
Gift buying envelope
Vacation envelope
Savings envelope
Insurance envelope
Etc
Get the picture? For every living expense that you can have, you use a separate envelope.
Each time you get paid, you allocate, as accurately as possible, a portion of your paycheck into the different expense envelopes.
Any money left over should automatically go into your savings envelope.
Example:
Your rent is $650 a month, so you divide that by 4 and each week you put $162 into your rent envelope.
Your food allowance is $150 a week, when you get your paycheck you put $150 in the food envelope. When you need to buy food, you take food envelope with you to the store; you put back into the envelope any money that you didn’t spend on food.
The same for utilities, using previous utility bills as a guide, you believe that you need to put $50 a week into your utilities envelope to cover the monthly bill, at the end of the month you will have $200 to pay your utility bill.
At the end of the month, you might have $50 that you have not used in your eating out, utility or food envelopes, transfer this $50 into your savings envelope – you will be amazed at how the savings envelope begins to get full J
Deposit the money in your savings envelope into your savings account, that way you are not tempted to spend it, plus it is safer in the bank than in an envelope.
Depending on what web sites you research and on what day, you will be inundated with different “official” and “recommended” guidelines, for how much you should spend on your living expenses.
Lets take a look at some of the recommendations that we found, unless otherwise stated these are the maximum % you should be spending in any given expense area, and of course, your final expenses total should not be more than 100% of your net income.
Using the table below as a guide, you can calculate what you are paying for each expense area and then put that figure in the end column, this will give you an idea if you are within the guidelines.
Look at monitoring Debt-to-Income Ratio, which will give you the 20/10 and 28/36 rules for income versus debt.
|
Expense |
Recommended % of income |
Using a $2000 a month paycheck |
How much do I actually pay a month? |
|
Housing – Including: mortgage, rent, taxes, repairs, improvements, insurance and utilities |
30% |
$600 |
|
|
Transportation – Including: gas, oil, insurance, parking, repairs and public transportation |
15% |
$300 |
|
|
Debt – Including: personal loans, student loans, credit card payments, loans for furniture etc, and any other debt payments |
5% |
$100 |
|
|
Savings – Including: bonds, collectibles, savings accounts, stocks, shares, etc |
Minimum 10% |
$200 |
|
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Other – Including: Health care, entertaining, clothing, insurance, hair, beauty products etc |
24% |
$480 |
|
|
Food |
16% |
$320 |
|
|
Total |
100% |
$2000 |
|
True or false - For some people shopping has become just as addictive as gambling or alcohol?
Unfortunately to the answer to that question is True, check out the following links below:
http://www.addictionrecov.org/spendaddict.htm
http://www.updated.com/search/?text=Symptoms+Of+Compulsive+Shopping
http://www.indiana.edu/~engs/hints/shop.html
http://www.4therapy.com/consumer/life_topics/topic.php?uniqueid=566
http://www.stoppingovershopping.com/treatment.htm
http://www.psychworks.com/addictionfaq.htm#spending
http://www.msnbc.msn.com/id/3079359/
http://voice.paly.net/view_story.php?id=935
We all have our own ingenious methods for saving money don’t we?
Please let us know if you have a great idea or method
Here are some ideas that we found:
Child Care
Check into government provision that allows individuals to take pre-taxed money and set it aside in a flexible spending account to pay for childcare expenses.
Is there a YMCA or Boys/Girls club that would be less expensive than current provider?
Is having a family member watch the children an option?
Clothing
Look for bargains at consignment shops, thrift stores, etc.
Name-brand conscious individuals should shop at stores like Marshalls, TJ Maxx, Ross, etc.
Avoid going to the mall to pass time (usually you don't want what you haven't seen)
Don't buy new clothing items just because they are on sale, instead buy on a needs basis
Avoid buying clothing that requires dry cleaning
Medical
Check into government provision that allows individuals to take pre-taxed money and set it aside in a flexible spending account to pay for medical expenses.
Exercising and eating right along with good dental hygiene practices help keep medical bills down
Consult with your doctor about generic medications vs. name brand medications
Stop smoking: benefits include better health and more $ to apply somewhere else
Other
Utilize holiday and travel budget planner to curb excess spending
Set an ATM limit and stick to it.
Get a set amount of cash out at the beginning of each week and make it last!
Any leftover money should be added to your savings.
In a 2+ car household, consider selling one car to reduce car payments, insurance, gas and maintenance expenses
Trade an expensive car in for a more economical one
Determine the cheapest route to daily activities such as work. Try to avoid major, crowded highways (which could eat up gas) and toll roads.
Purchase an electronic toll pass – usually cheaper rate at the toll booths for using these
Find out if you receive any transportation-related employment incentives, such as discounted train and/or bus rates.
Water down detergents, conditioners etc or use a lesser quantity per load
Entertainment
Renting a movie generally costs half as much as going to the movies
Invite friends over to play board games or to watch a movie/sporting event
Do free stuff: visit local parks and museums, attend public concerts, go on picnics
Use spare time to volunteer/be a mentor
Consider getting a part time job (especially during seasonal sales) to increase cash flow and reduce idle time
Consider having children spend the night at a friends house instead of paying for a babysitter
Take advantage of library resources (rent books vs. buy, free Internet access, etc.)
Join a company/community sponsored sports team
Have a romantic “date” at home
Car Insurance
Periodically review coverage to ensure it meets current needs
Consider increasing deductibles to lower monthly costs
Shop around for the best price on the same level of coverage
Car Repairs
Perform maintenance duties on a regular basis (i.e., oil changes, maintain proper fluid levels and tire pressure)
Get a second opinion if you are not familiar with the repair or the mechanic
Talk to a do-it-yourself auto parts store about the possibility of doing small repairs with their help
Gasoline
Car pool to work, school (consider having children ride the school bus, if available or walk them to and from school if you live close enough)
Avoid driving home for lunch
Ensure proper tire pressure for best gas mileage
Shop for the lowest priced gas on regular routes
Use lowest octane fuel that the car's manufacturer approves
Consider buying a car that gets better gas mileage
Weigh public transportation options (save on gas, insurance, car maintenance, etc.)
Don't fill the gas tank all the way up, sometimes as much as half a gallon can leak out as the gas sloshes around during travel
Eating Out
EAT AT HOME
Bring lunch to work (good way to use leftovers)
Skip dessert if you do eat out
Avoid stops at food marts/bagel shops to and from work
Bring snacks instead of using vending machines
Go out to eat only on special occasions
If you must go out, go for lunch rather than dinner (usually cheaper)
If you have children and must eat out, choose restaurants where kids eat free
Use coupons (buy one entrée, get one free; 15% discount off bill, etc.)
Buy the 99¢ burgers to go, skip the soda and fries
Groceries
Use coupons
Shop lowest price stores (avoid convenience stores)
Prepare low budget meals (spaghetti vs. steak)
Stock up on frequently-used items when they are on sale
Buy generic rather than name brands
Use a shopping list instead of impulse buying and stick to it
Limit trips to the grocery store to once a week at most (do without items you forget)
Use powder milk (or mix half powder milk and half regular milk)
Eat leftovers
Don't shop on an empty stomach or when you are tired, depressed, or stressed.
Shop alone so that a third party (such as a child/friend) won't influence the decision making
Bring a calculator to determine the best buy on different sizes of the same item
Buy only items that you will actually eat (don't buy broccoli b/c it is cheap, if you don't eat broccoli)
Plant a garden if feasible
If the store has a savings card make sure you use it
Review the cash register receipt for errors (especially to ensure sale items were priced correctly)
Avoid the added expense of precut and prepared produce, such as salads in a bag
Buy block cheese and shred it at home
Dry pasta normally costs less than frozen or fresh pasta
Avoid high-priced snack foods
Don't buy non-food items at the grocery store
Avoid the products at the check out stand: refrigerated soda, magazines, batteries and junk food
Spend as little time as possible in the store; the more you look, the more you buy
Items that require user preparation usually cost less than ready-to-eat items
Compare prices on different brands of the same item based on weight rather than package size
Develop a meal plan so that perishable foods do not become rotten and have to be thrown out
If you must buy cereals, bagged cereals usually offer a better value than boxed cereals
Try to make more meatless meals. Beans and veggies can be just as filling without the added cost
Cable/Internet
Discontinue premium cable or cancel cable entirely
Use free/reduced rate Internet access provider
Avoid excessive pay-per-view fees
Consider canceling Internet service for a few months (some compani
Use prepaid phone cards and discontinue long distance service all together.
Electric
Turn off lights not in use
Let clothes air dry, or use only half of the time allotted for the dry cycle
Set your thermostat low in the winter/high in the summer
Enroll in load management programs and off-hour rate programs offered by your electric utility
If you use a dishwasher, let the dishes air dry rather than using the dryer.
Consider replacing incandescent lights in high-use areas with fluorescents
Put your fans to use! Cool your house down by running area fans, but be sure to turn them off when the room reaches a comfortable temperature.
If you have a fireplace, make sure the damper is closed to avoid lost heat in the cool months.
Close A/C vents, doors and windows to any rooms that are rarely used
Lower the temperature of your water heater. The savings will be great, and you may not even notice the difference in temperature
Water/Sewer/Garbage
Install water-saving shower heads/faucets (sometimes available for free at public utilities offices)
Limit lawn watering
Repair leaky faucets
Reduce the amount of water consumption by placing bricks in the toilet reservoir
When possible, shop around for garbage providers and evaluate the service that is needed (are you paying for three trash cans to be picked up and only filling two, do you need twice a week service or would once a week be OK?)
Evaluate water usage: take a shower rather than a bath, reduce amount of time you keep the water on, etc.
Students
Have a dinner night with school friends and switch off cooking duty each week. You'll only have to pay once a month, and the difference between cooking for one and cooking for a few is minimal!
Flash your student ID everywhere you go. Many retailers, restaurants, entertainment locales and transportation services offer student discounts.
Make twice as much as you'll eat when you cook and freeze the leftovers. They'll last longer than if you refrigerate and you'll always have a meal available in a time crunch!
Check out on-campus entertainment, which is usually free or significantly cheaper than off-campus events
Support FREE (or nearly free) dates! Picnic in the park, visit the campus museum, check out poetry readings, go for a bike ride . . .
Don't spend a fortune to furnish your apartment!!!! Check out thrift stores, yard sales and the classifieds. Drive around apartment complexes after finals to see what graduates are throwing away!
WAYS I CAN SAVE MONEY BY CUTTING EXPENSES
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Track my Daily Spending
The table below can be used to track your spending on a daily basis. After a specified time frame such as a week or a month, add up the ‘TOTAL’ column to figure up the amount you actually spend each month and how that varies from what you budgeted.
Used in conjunction with the handout entitled: ‘How to Save Pennies a Day’, this method helps to gain control over impulse spending and show you where you can save.
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Where I spent my money: |
Mon |
Tues |
Wed |
Thu |
Fri |
Sat |
Sun |
Total |
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Total for this sheet |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
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Combined totals from all my sheets for this week |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
My total spending for this Month is $________________________
How to save from pennies a day
Here are some classic examples of how people waste money on a daily basis and don’t seem to be aware of what they are doing.
The Daily Soda
-
1 can of soda = $1.25
2 cans of soda per day x 5 days per week = $12.50
2 cans of soda per day x 5 days per week x 50 workweeks = $625.00
The Donut and Coffee or Mac Muffin Breakfas
-
1 donut and coffee or Mac Muffin a day = $3.00
1 donut and coffee or Mac Muffin a day x 5 days per week = $15.00
1 donut and coffee or Mac Muffin a day x 5 days per week x 50 workweeks = $750.00
The take-out Big Mac or KFC Lunch
1 take-out lunch a day = $6.00
1 take-out lunch a day x 5 days per week = $30.00
1 take-out lunch a day x 5 days per week x 50 workweeks = $1,500.00
The worksheet below will assist you in determining your current financial standing.
Please complete the worksheet to best of your ability.
SPENDING PLAN MONTHLY WORKSHEET
|
Monthly Income-After Taxes |
How much it costs |
Comments |
|
Take home pay |
$ |
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Alimony/Child Support received |
$ |
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Any other income source: |
$ |
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Monthly Expenses-Housing |
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|
1st Mortgage or Rent |
$ |
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2nd Mortgage or Equity Loan |
$ |
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Property Taxes (monthly) |
$ |
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Heat/Electricity/Water |
$ |
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Telephone (home and cell)/Internet/TV-Direct TV or cable |
$ |
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$ |
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Monthly Expenses-Insurance and Food |
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Auto Insurance |
$ |
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Home Insurance |
$ |
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Life Insurance |
$ |
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Health Insurance |
$ |
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Medical/Dental/Prescriptions |
$ |
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$ |
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Monthly Expenses-Other |
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Savings |
$ |
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Education |
$ |
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Children’s Expenses (Child Support/Child Care) |
$ |
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Recreation/Vacations/Health Club/Sports |
$ |
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Books/Magazines |
$ |
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Cigarettes/Alcohol |
$ |
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Beauty (hair, nails, dry cleaning) |
$ |
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Car repairs and maintenance |
$ |
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Charity contributions |
$ |
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Gas |
$ |
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$ |
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Monthly Expenses-Debts |
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Credit Cards |
$ |
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Student Loans |
$ |
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Car Loans |
$ |
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Grand Total |
$ |
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