Getting a handle on your spending

By Amy O'Donnell

For Washington Society of CPAs
Published on: July 24, 2008

Ever feel like the money coming in is gone before you know it? Do you remember where you spent your last $20? With our current economy instability, it is going to be more important to keep track of where our money is going and how we are spending the money. One valuable tool to help you do this is a spending plan, also called a budget. For some the word budget can be off-putting but it really is a way to plan your spending and give you a clear picture of where your money is going. It will give you ideas on how you can save money, help you steer away from splurges, and the opportunity to align your spending with your goals. Gaining control over your finances and knowing where you paycheck is going is a great stress reliever and we can all use a little stress relief.

Not sure where to start? It can be a little overwhelming to figure out what information you need and how to maintain a spending plan. You can break it down into two sections: income and expenses. For income, you need to determine how much money is coming in. Start by writing down your earnings, child support, alimony, assistance and Social Security payments, monetary gift and interest/dividends. Add these together to determine your total income.

For expenses, you need to determine how much is going out. Expenses can be grouped into three groups: fixed, variable and discretionary. Fixed expenses are costs that are regular and their amounts change very little, such as rent or mortgage. Variable expenses are those that occur regularly but the amounts will change, such as an electric bill or gas. Discretionary expenses are those we choose to spend but they are not necessary, such as dining out or entertainment. This is the group of expenses that can cause people the most trouble. Often we will spend small amounts of money on many items, not taking into account how much all of those small purchases take out of our pockets. They really do add up. If you are looking for a place to save money, this is a good place to start.

Now that you have pulled these pieces together you can create a plan and determine how much of your money will go to your expenses. You should create a plan for the year and review it every three months to see if you have cut your expenses too much or if you are still spending too much. Make adjustments so you can stay on track with your financial goals without feeling like you are too restricted. Experts recommend the following percentages for your expenses:

Are you close? Not yet? That’s ok, these can serve as targets for you. If you keep using your spending plan and making adjustments, paying down your debt and building up your savings, you will get closer and closer to these targets.

Now that you have your spending plan, there are some tools that you can use to help you stick to it. You can use an expense envelope system. For each expense, create an envelope and write the due date on it. When you get money put it into the envelopes and be sure to pay your bills promptly so you aren’t tempted to spend the money.

Another tool is a spending plan box system. Take a small box and set up dividers for each day of the month. When you get a bill, put it behind the divider with the due date. As you get income, pay your bills that are due. There are also many computer systems that will help you track you expenses, when bills are due and how much income you have. Mint.com is also a website that you can use to help you.

Starting to gain control of your spending and income now will help you make the choices or trade-offs to meet your goals, while freeing up money for things that matter.

Sources: Bellevue Community College Investor Education, AICPA 360 Degrees of Financial Literacy

Story Tools

This Week's
Front Page