Creating and Using Your Spending Plan

Now that you’ve categorized your spending and considered whether or not it meets your needs and desires, let’s use Day 25 of 31 Days to a Better Bank Balance to get your spending plan created and put into use. (After all, what good is a plan if you don’t use it?)

Now you may have noticed that there were a LOT of potential categories originally. If you love tracking and organizing on a granular level, you can go ahead and use all of the categories that apply to your situation. I have a ton of categories myself, although not nearly as many as I put on the list of possibilities. I suspect though that most people prefer fewer categories, and that’s just fine. After all, it’s your plan, so it should meet your needs. So, if you prefer fewer categories, group things together in a logical manner.

For example, you might group all of the sub-categories and amounts below into a single category called Car Expenses with a total average amount of $700/mo:

Car Payments – $343/mo
Car Repairs – $50/mo average
Car Maintenance – $35/mo average
Gasoline – $100/mo average
Car Registration – $14/mo average
Car Insurance – $130/mo
Parking – $28/mo

It doesn’t matter how you group things, as long as you include all of your expenses. (It’s just that when you’re first creating your a plan, it’s easier to remember all of your expenses if you start out by looking at them in detail. It’s easy to forget things otherwise.)

In the example above, notice that I put “average” by some of the amounts. Obviously many expenses will vary, and some will be irregular. You might not need any car repairs one year, but a massive car repair the next. Or you might only pay your car insurance once a year, or every six months.

What about irregular expenses?

For irregular or infrequent expenses like these, I highly recommend either literally sending money each month to accounts designated specifically for those purposes, or else hanging onto the money in a single account until you need it and just earmarking it for the various purposes. I go the literal account method, and send money to ING each month, where I hang on to it until I need it.

This turns those “Oh no! I forgot that the car insurance is due this month! Where are we going to get $780?!” moments into “Huh, the car insurance is due. Time to withdraw the money for it.” That’s the day you’ll become a true fan of your spending plan.

(Which reminds me, remember to put long term savings and investing into your spending plan as well. Pay yourself first every time you make money.)

So for today, the goal is to do two things:

  1. Create your plan, either in a spreadsheet (OpenOffice and Google docs are free) or by using something like PageOnce or
  2. Start using your plan. (Set up accounts or earmark funds, track your spending to see how you’re doing, and commit to evaluating your plan as needed.)


There’s one more thing to remember about a spending plan. Like all plans, it may change. You might pay off your car. You might get a raise and decide to increase savings. You might realize that planning on spending only $50 a month for groceries isn’t going to work, but that you could do without paying $200 a month for cable TV to give yourself more grocery money. You might decide that you no longer want to vacation in Bora Bora every year, but instead you want to get a gym membership — or vice versa.

It’s good to make changes, because you want your plan to be a tool that benefits you by helping you achieve your goals.