Step One: The Budget Spending Plan

Step One: The Budget Spending Plan

By this time you should have $1000 set aside for hard times. Plus you should be working diligently towards your 3-6 month expense account for long-term well being. Click Here to get started on this step if you haven’t already.

I’ve tried to avoid using the word budget when it comes to planning your future, but sometimes when you change the terminology you change the behavior. A spending plan is designed to, well, plan your expenses. No matter how much planning of your spending you do “in your head,” you never know how much spending that slips through your hands as “little purchases.” It’s good to track them. Consider the words of Arkad of Babylon from our Millionaires’ Bookshelf reading list classic The Richest Man in Babylon:

Budget thy expenses that thou mayest have coins to pay for thy necessities, to pay for thy enjoyments and gratify thy worthwhile desires without spending more than nine-tenths of thy earnings

(Emphasis Mine).

This stresses a very good point. In a spending plan, you include all spending you plan to do, including entertainment, eating out, etc. If you are not sure how much you plan to spend, estimate—including taxes. However, you should ensure that you do not exceed 90% of your income. (You’re saving 10% anyway, remember?) And for those of you who tithe regularly, this should be included as an “expense.” Saving 10% of your earnings doesn’t absolve you of giving 10% as a Christian to a place of worship of charitable organization. When building your wealth, never forget the importance of charity.

The easiest way to develop your spending plan is to simply list all of your incoming funds (wages, bonus money, etc.) and subtract the outgoing funds. The number should be as close to zero as possible, but never less. (It could be more). You have to make every dollar holla—in other words, every incoming dollar you get should be diverted somewhere—to savings, investments, movies, food, utilities, car payments(if any), credit card payments, snacks, clothes, health care, transportation, etc. Set a weekly target for your spending and WRITE THEM DOWN. This is extremely important because if left to your own devices (its all in your head) you will cheat yourself. State at the beginning of each week how much you plan to spend on food, entertainment, etc. Include all bills

You then work to stay within your spending targets. Because of the debit-card well problem (I'll explain in a later article), I suggest you use the cash-envelop method for your day-to-day purchases. The reason is because you don’t see your money going away (you’re not as conscious of it as if you’re seeing cash leave your hands). For safety (and simplicity) you should probably use the debit card when on trips/vacations, and making electronic payments (cable/internet, utilities, etc.)

This will take a little time to adjust to. But I have faith you can do it. Not only will your eyes be opened to your actual spending, but you’ll feel in control of your money and where it is going. Mastery of your current expenses is among the first steps to building your tower. It makes no sense to carry a bucket around with a hole in it demanding that you need more water to keep it full. Your spending plan helps you find where to plug the holes.

Coming Soon: I’m perfecting an excel file where you can customize to your needs.