Create a Spending Plan

Create a Spending Plan

You need the spreadsheet you completed under "Where Has It Gone" to determine your "average" monthly expense by category. Most people would take the total in the far right column of the spreadsheet for a given category and divide it by 12 months. This method will cause your plan to fail several months of the year. Instead, pick an amount that would have been sufficient to pay that category expense 10 out of the last 12 months, and use that amount as the "average" expense for that category. Determine the average using this method for each category, and write the amount for each category to the right of the total for that category on the spreadsheet.

Now, create a new spreadsheet and title it "Spending Plan". I have created a spreadsheet that you can use called CFMP. Click on the link (CFMP) to download the spreadsheet. If you cannot download the spreadsheet, then create one with 4 columns. Title the second column from the left "Annual", the third column "Month", and the fourth column "Week". On the second row, in the first column, write "Income". Leave several rows for the various income sources you have, then write "Expenses" in the first column. Leave a couple of lines between the Income and Expense sections, so you can write down the total of your income. Below Expenses, list all the expense categories you used in developing the first spreadsheet under "Where Has It Gone". Write the "Cash" category on the first row, then write the others below it.

This spreadsheet will be referred to as the "Spending Plan".

If you downloaded the spreadsheet, then take the average monthly amounts you determined for each category and multiply by 12. Put that result in the downloaded spreadsheet in the second column titled "Annual". The spreadsheet will then calculate the remaining columns. If you are creating your own spreadsheet than, then manually determine the amounts by putting the average monthly amount in the column titled Month. Multiply the amount by 12 and put the result in the column titled Annual. Then, divide the annual amount by 52 to determine the weekly amount, and put that result in the Week column.

DO NOT FILL IN THE LINE FOR THE "CASH" CATEGORY.

Do the same steps for your income. You normally would use your NET paycheck (after all deductions) IF you have income tax withholding AND you do NOT have to pay additional taxes at the end of the year. See the section titled "Self Employed" if you are self-employed or have to pay income taxes in addition to the amount withheld from your paychecks.

Now, add up the total income and expenses for each column. Then, for each column, subtract the Expense total from the Income total in the Spending Plan. If the result is NEGATIVE, then your fixed expenses exceed your income. If the result is POSITIVE, then write that amount on the "Cash" category line for each column, respectively.

The positive amount that was determined in the step above, which you wrote on the "Cash" category line, represents the amount you can afford to spend on discretionary items. Compare this amount with the amount you determined for discretionary items in the first spreadsheet (Where Has It Gone). There is usually a significant difference between the two amounts. The first spreadsheet tells you what you spent in discretionary expenses, whereas the Spending Plan spreadsheet shows you what you can AFFORD to spend in that category.

Go to "Now What Do I Do" to find out what to do next.