The spending plan (budget) is simply a way to tell your money where to go.
One of the biggest benefits of using a spending plan is that you are in control of where your money goes. It allows you to make financial decisions based on fact, not emotion. You can control your spending, get out of debt, save consistently, and give generously using a spending plan.
There are five steps to developing a spending plan:
The first step is to record your income and expenses for 30 days, and put it into categories. This will give you a good sense of what you’re actually earning and spending, and where the money is going.
Based on what you learned from 30 days of tracking your spending, step two is to complete the first draft of your spending plan. Look at the monthly spending vs. your monthly income and determine of you have a deficit or surplus.
In step three you will make adjustments to eliminate that deficit or surplus. It’s also important to realize that a spending plan is dynamic. Your financial situation is constantly changing and this will be reflected in your plan.
You might have a new child, get a new job, pay off a lot of debt, or retire … you’ll be making adjustments due to major life changes as long as you use your spending plan, but making too many adjustments may mean you are out of control.
The fourth step is to select which of the 4 basic budgeting processes you want to use.
1. The envelope system. When your paycheck comes, cash it and distribute the money among your spending categories and deposit it in envelopes. And when an envelope is empty, there’s no more to be spent in that category.
2. Pencil and paper. Many people prefer using a standard checkbook and ledger system.
3. Budgeting software. Good user-friendly software programs are available, such as Quicken, or Microsoft Money. Explore and find one that works for you.
4. On-line, wireless budgeting. Some people prefer an online tool such as Mint, Billster, or Personal Capital. Again – you need to explore each one and find one that works for you.
The key is to find a system you’re comfortable using. And then use it.
Step five is to record and review. Recording your income and spending at least once a week enables you to stay current with your finances. A regular review allows you to quickly discover any issues.
The good thing about using a spending plan is that it doesn’t require endless hours of bookkeeping. It shouldn’t take more than an hour of your time each week. Being diligent with your budget is a small price to pay to stay on top of your finances.
“The plans of the diligent end in profit, but those of the hasty end in loss.” (Proverbs 21:5)
If you want to learn more about what God has to say about how we should handle our money and possessions take our nine-week Bible study, Navigating Your Finances God’s Way.
Watch for our next blog on developing a crisis budget.