2.2.5.

F1

SpendingPlans
AdvancedLevel
TheStatementofFinancialPosi onandtheIncomeandExpenseStatementhelp
youmeasureyourpastandpresentfinancialposi on.Nowyouarereadytomake
aplanforyourfuturemoneymanagement.
ASpending Plan isforwardlookingincomeandexpensestatementsome mes
referredtoasabudget.Itrecordsbothplannedandactualincomeandexpenses
overaperiodof me.ASpendingPlanisanimportantpartoffinancialplanning
becauseithelpsyoutakecontrolofyourspending,and,therefore,controlyour
financialfuture.ByusingaSpendingPlantohelpmanageyourmoney,youwillbe
abletoincreaseyournetworthandreachyourfinancialgoals.
UsetheStatementofFinancialPosi onandtheIncomeandExpenseStatementto
setgoalsanddeterminewhatchangestomaketoyourfinancialdecisions.Then,
useaSpendingPlantoimplementthosechanges.Ifyouthoughtyouspenttoo
muchonacertainexpenseinthepast,thenuseyourSpendingPlantolimitthe
amountofmoneyyouplantospendinthenext meperiod.Whencomparingthe
StatementofFinancialPosi on,theIncomeandExpenseStatementanda
SpendingPlan,thinkofthedierencesintermsofpast,presentandfuture
financialac vity.
HaveyoueverdevelopedaSpendingPlan?Ifso,didit
helpyoutakecontrolofyourmoney?Ifnot,doyouthink
aspendingplanwouldhelpyoumanageyourmoney?

Why is a Spending Plan an important part of financial planning?

Individualsusuallyhavemorewantsthantheycanaordwiththeirincome.Therefore,individualsmustmaketradeos
intheirspendingdecisions.ASpendingPlanforcesyoutoconsidertheopportunitycostsofyourplannedpurchasesto
helpyoumanageyourmoneyinawaythatmaximizesyourfinancialwellbeing.

TakeChargeTodayUpdatedAugust2013SpendingPlansPage1
FundedbyagrantfromTakeChargeAmerica,Inc.totheNortonSchoolofFamilyandConsumerSciencesTakeChargeAmericaIns tuteatTheUniversityofArizona

2.2.5.F1

Developing Your Spending Plan

LikeanIncomeandExpenseStatement,aSpendingPlan(orbudget)includes
income,expensesandanetgainornetloss.Crea ngaSpendingPlanisa
simplefivestepprocess.Thefirstthreestepsdevelopthespendingplan,and
thelasttwostepshelpmaintainthespendingplan.

1
2

Thefirststeptocrea ngaspendingplanistodeterminehow
muchmoneyyouearnandhowyouspendit.Youalready
completedthisstepwhenyoucreatedyourIncomeandExpense
Statement,soitisimportantnottoskiptheIncomeandExpense
Statementstep.Therecordofyourearningsandexpenseson
yourIncomeandExpenseStatementensuresthatyourSpending
Planisrealis c.

Themosteec veSpendingPlansarethosethatarepersonalized.Inthisnextstepyoushouldpersonalize
yourspendingplanbyansweringthreeques ons:

1. How will you develop a Spending Plan? WritedownyourSpendingPlanbecausewithoutatangiblerecordofyour

plannedandactualspending,youmaythinkthatyouareearningmoreorspendinglessthanyouactuallyare.You
can:
Aspreadsheetmaybecreated
Simplyusepaperandpenciltodevelopandkeeptrackofyourplan
withMicroso Excelor
Developyourplaninaspreadsheetforeasytracking.
GoogleDocs.Quickenisan
Purchaseamoneymanagementcomputerso wareprogramwhich
exampleofamoney
helpsdeveloppersonalizedSpendingPlans,aswellasfinancial
managementcomputer
statements,taxreportsandotherpersonalfinancereports.
so ware.
Useasmartphoneortablettodownloadmoneymanagement
applica ons(apps).
2. Determine a me period for your Spending Plan. Amonthly meperiodismostcommon.However,youmightget
paidweeklyorbiweeklyandprefertosetupyourSpendingPlanaccordingly.YourSpendingPlanisexactlythat
your plan.Seta meperiodthatmeetsyourneeds.
3. What categories will your Spending Plan include? Personalizeyourplanfurtherbydeterminingwhatincomeand
expensecategoriestoinclude.RefertoyourIncomeandExpenseStatementanddetermineifyouneedtoadd,
changeorremoveanycategories.
Whatmethodofcrea ngaSpendingPlanandwhat meperiodwouldworkbestforyou?Why?

TakeChargeTodayUpdatedAugust2013SpendingPlansPage2
FundedbyagrantfromTakeChargeAmerica,Inc.totheNortonSchoolofFamilyandConsumerSciencesTakeChargeAmericaIns tuteatTheUniversityofArizona

2.2.5.F1

Nowyouarereadytoplanhowmuchmoneytoallocateineachcategory.Considerthefollowing:
Analyzethetradeosacrossspendingcategoriestodeterminewhichalloca onofyourbudgetwillmake
youthehappiest.Iftheopportunitycostistoohigh,yourplanneddecisionmaynotberealis candit
maybetoughtos cktotheplan.
ReviewyourgoalstoensuretheSpendingPlandecisionsalignwithyourgoals.
Ifyouareconsideringwaystoreduceyourexpenses,thinkabouttheexpensesonyourSpendingPlanas
contractualversusnoncontractual.Contractualexpenses
Contractual
Noncontractual
arenoteasytoreduceoreliminatebecauseyouhave
signedsomesortofcontractthatrequiresyoutopaythat
expenseforaspecificamountof me(carloan,
educa onloan,creditcarddebt,apartmentlease).Non
contractualexpensesareeasiertoeithereliminateor
reduce.Foodisanecessity,butthepurchaseofla esand
latenightpizzascanbereduced.

Requiredtopayexpense
foraspecificamountof
menoteasytoreduce
oreliminate

Easytoreduceor
eliminate

Rent,Internet,Cellphone

Food,entertainment

Doyouhaveanycontractualexpenses?Ifso,whatarethey?

Itmayhelpyoutorefertoaspendingguidewhendeciding
howmuchtoallocatetoeachexpense.Thispiechart
providesaguidefordistribu ngnetincomespenttoeach
expensecategory.

Onceyouhaveallocatedyourmoney,determineifyouhaveanetgainornetloss.Subtrac ngexpensesfromincome
determinesthis.Iftheresul ngamountisnega ve,itmeansthatyouhaveanetlossandareplanningtospendmore
incomethanyouhave.Inthiscase,youneedtoincreaseincome,decreaseexpensesordoacombina onofboth.If
theresul ngamountisposi ve,youhaveanetgain.Youcanaddmoremoneytosavingsorpaydownanother
liability.Youul matelywanttohaveanetgainoratleastazerobalance.

Income

Expenses

Net Gain or Loss

When this step is complete, you have

developed a spending plan!

TakeChargeTodayUpdatedAugust2013SpendingPlansPage3
FundedbyagrantfromTakeChargeAmerica,Inc.totheNortonSchoolofFamilyandConsumerSciencesTakeChargeAmericaIns tuteatTheUniversityofArizona

2.2.5.F1

Whentheopportunitytospendyourincomepresentsitself,youmayfinditeasytos cktoyourplanned
spendingdecisions.But,tempta oncanpullpre yhardonyou,soyoumayfindthatselfcontrolisdicult
inthesesitua ons.Luckily,therearemanycontrolsystemsavailabletohelpyoumonitoryourspending.Find
acontrolsystemthatworksforyou.Someexamplesinclude:

Moneymanagementcomputerso ware:Inaddi ontocrea ngyourspendingplan,computerso wareprograms

canalsofunc onasacontrolsystemtotellyouwhereyourmoneyisgoing.However,thiswillrequireyoutokeep
trackofeveryoneofyourfinancialtransac onsandenterthemintotheprogram.
Internetbasedspendingplanprogram:TherearemanyInternetbasedspendingplanprogramsavailable.Someare
freeandotherschargeafee.TheadvantageofInternetbasedspendingplanprogramsistheyallowyoutoaccess
yourinforma onfromanydevicethathasInternetaccess.Also,manyoftheseprogramswilllinktoyour
depositoryins tu onaccountsandautoma callytrackyourspendingforyou.Thisisanadvantageovermost
computerso wareprogramsthatrequireyoutotakethe metoenteryour
MintandPearBudgetarefree
financialinforma on.ManyInternetprogramshavedevelopedsmartphone
Internetspendingplan
andtabletappssoyoucanaccessyourspendingplaninforma ononthego.
programs.
Depositoryins tu onprograms:Somedepositoryins tu onsoeranonline
spendingplanorbudge ngprogramthatlinkstoyouraccount(s)andwill
automa callytrackyourspendingtoshowyouwhereyourmoneyisgoing.Thismaybeinconjunc onwiththeir
onlineand/ormobilebankingoerings.
Checkregistersystem:Thecheckregistersystemisacontrolsystemthatusesacheckbookregisterthatisdivided
intospendingplancategories.Whenapurchaseismade,youplacethatexpenditureintothecolumncreatedfora
givenspendingcategory.
Envelopesystem:Theenvelopesystemisastrictcontrolsystemthatinvolvesplacingthebudgetedamountofcash
intoanenvelopelabeledfortheexpense.Whentheenvelopeisempty,thebudgetedamountforthatexpensehas
beenspentforthat meperiod.Becarefulnottostoretoomuchcashinyourenvelopesbecausecashstoredat
homeismorevulnerabletolossandthe .Youmayfindthattheenvelopesystemworkswellforexpense
categoriesthataresubjecttoimpulsepurchases.Entertainmentandfoodpurchasedawayfromhomearegood
examples.Usingtheenvelopemethodforthesecategories,whentheenvelopeisempty,furtherspendinghasto
waitun lthenextperiod.

Thelaststepistoevaluatehowwellyourspendingplanisworkingandmakeanynecessaryadjustments.Ifyou
finditeasytos cktoyourplan,thenyourSpendingPlanworkswellanddoesntneedadjus ng.Ifyouare
havingdicultyholdingyourspendingwithintheallocatedamounts,askyourselfiftheamountsarerealis c.
Consideryourgoalswhenevalua ngandadjus ngyourspendingplan;thismaydetermineifadjustmentsare
needed.

TakeChargeTodayUpdatedAugust2013SpendingPlansPage4
FundedbyagrantfromTakeChargeAmerica,Inc.totheNortonSchoolofFamilyandConsumerSciencesTakeChargeAmericaIns tuteatTheUniversityofArizona