Creating a Spending Plan
As mentioned in my previous post, the plan for Memorial Day was to spend some time sitting down and creating a spending plan since I don’t care for the term budget. I did just this and the results aren’t the most encouraging. I have been spending more than I should be in many areas. As a result, there is great opportunity for improvement and taking control of my own destiny. So, how did I create the spending plan and what will I do with the information?
Looking at Where We’ve Been
The income portion of the equation was fairly easy. I looked at the deposits to the checkbook since all of my work income is directly deposited. It fluctuates somewhat, so I took the amount over the last 6 months and divided by 6 to get an expected monthly total. I then looked at the income from the rentals over the first 5 months of this year and subtracted a little for vacancies in order to get an expected amount from rental income.
Next, I listed out all the fixed monthly bills such as mortgage payments, car and student loans or anything else that had a regular monthly payment that was well defined. I then looked through my receipts for period payments like life and disability insurance and calculated an appropriate monthly total.
For expenses such as gasoline, I added up 2 months worth of debit card statements since we rarely pay cash for gasoline and primarily use the debit card. The totals were very similar so I got a pretty good idea of that expense. I did the same for eating out and groceries.
Where are We Going with this Information?
I would like to improve my monthly cash flow in order to begin paying off some debt and establish some emergency funds. Of course, there are 2 ways of improving cash flow. First, it is possible to increase income which is great but may not always be an option. The second way to improve cash flow is to decrease expenses. I would like to do both if possible, but I plan on starting with the low hanging fruit and analyzing every expense over the next few months to see what can be cut out.
I plan on starting by tracking each and every penny that is spent on a daily basis. When my wife and I kept meticulous records of calorie intake, we were able to lose weight. I figure the same principles will apply to managing money. Meticulous record keeping and the resultant focus should lead to decreased expenses and small successes that can build momentum.
We will get this started for the month of June with the goal of increasing cash flow by 2% mainly by decreasing expenses. I will report the progress at the end of the month and hopefully will be able to examine some of the structural components of the spending plan and see if there are alterations that can be made in order to increase monthly cash flow more. Ultimately, I would like to see cash flow improve by about 1% per month on average over the next year.