Welcome to My Best of Both Worlds’ Guest Blogging feature Financial Fridays!
guest blog post by Susan Quigley, CFP
Financial Fridays is back with how to create a Spending Plan.
Many years ago I went on a guided hike, and the guide told us we were going to lunch on the other side of “that” mountain. I thought we were walking around the base of the mountain, LOL, but no, we were going OVER it! It seemed impossible looking up from the base of the mountain, but step by step we got to the top and got to enjoy the most incredible views.
Doing a Spending Plan or budget is like that mountain. If you have been following step-by-step, then today is the day you are going to stand on top of the mountain and take a look at the View – your future goals that are now within sight! Get out a fresh sheet of paper or a new spreadsheet and let’s get going!
STEP 1 -Top of Page – list your net income – the amount of your net paychecks each month (what gets deposited into your bank account). If you get paid every two weeks, that means some months you get three paychecks. Base your budget on the nine or ten months a year that you only get two paychecks.
NOTE: if you get a large tax refund every year, then make a note that you need to adjust your withholding OR take that into account for your savings goal. If you have a lot of debt, then you really need to change your withholding so that you have a higher monthly income that will help you pay your debt off faster. No sense in giving the IRS an interest-free loan – your debt isn’t interest free!
STEP 2 – Add up MINIMUM payment for all debt and list it as a negative number below your net income
STEP 3 – Add up your bare bones expenses and list it as a negative number under debt and income
SUB-TOTAL – Take Income and subtract your bare bones budget and debt payments. The remaining amount is what you have for the rest of your budget and your savings goals.
STEP 4 – Normal budget expenses – subtract those from whatever is left. Is it a positive or negative number? If it’s a negative number then you are living beyond your means and need to cut expenses now! If you have some excess, then you can assign that money to savings goals. These first four steps let you know if you are living, or able to live, within your means. Are you paying just the minimum payment on debt? Are you saving? DON’T THROW THIS AWAY! We will be coming back to this next week to either get you in balance or to increase your ability to save.
Next week we will go through how to save money each month, how to pay off debt and how to make the best use of your extra income after basic budget and debt is paid each month. I promise we are getting close to the top of the mountain!
Net Paycheck (or paychecks for both in a household) $5,000
Minimum Payment on all debt (car loans, student, credit cards) -$600
Bare Bones Budget (rent/mtge, basic utilities, car ins, groceries) -2,000
The $2,400 is what you have for the rest of your expenses and savings. Look at your spending plan and decide how you want to spend your money COMPARED to what your goals are: Do you want to pay off your debt faster or retire comfortably? Save for your child’s college or go on a trip to Italy? All the choices in this column come at the expense of your bigger goals so choose wisely. To reach your goals faster check out the list below or my facebook page on how to save $3-5,000 a year by making small changes. It’s just a small list, but I would LOVE TO HEAR how you saved! Share it with the other readers by posting your savings ideas in the comments section. I’ll summarize them and post them. Let me know if this process opened your eyes to where your money is really going. You can comment below or email me at Squigley@americanportfolios.com.
Not A Recommendation, Time Sensitive, Subject to Change, Views and Opinions are strictly that of Susan Quigley only Registered Representative offering securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC Investment Advisor securities products/services offered through American Portfolios Advisors, Inc., an SEC Registered Investment Advisor Mortgages are offered thru Mortgage Advantage, Inc., which is not affiliated in any way with American Portfolios, or American Portfolios Advisors. NMLS# 414708