Make a Manageable Spending Plan

Although the word "budget" is not politically correct in today's "I want it now" credit-overrun society, your financial health depends on having one. Larry Burkett, co-founder of Crown Financial Ministries, defined a budget as "telling your money where to go instead of asking where it went." Dave Ramsey, author of The Total Money Makeover, says to give every dollar a name.


Here's why you need a plan for your money, regardless of what you call it. First of all, an effective spending plan shows you how much to spend and how much to save. Secondly, it gives you peace of mind because it puts you in charge of your money. Finally, it helps prepare you for life's unexpected calamities. Ramsey teaches that sticking to a written money plan will also eliminate many money fights and add a deeper level of unity to your marriage.


Desperate housewives hemorrhage money--it just oozes out of their pockets and they're not quite sure where it went. If we choose a life of delight instead of one of desperation, we must get control of our finances. An effective budget should fit your life and must keep you accountable if it's going to work. What's the best way to make a plan that you can stick to?


1. Establish where you are right now. Keep a diary of expenses for a few weeks and compare actual monthly expenses with monthly income. You may be surprised to learn that you're spending $250 a month eating out in addition to $400 on groceries.


2. Determine your monthly net spendable income--what you take home after giving, taxes, and other deductions.


3. Divide your expenses into categories. List regular (rent, daycare, car note) and periodic (insurance, real estate taxes) expenditures, and savings. We've found that using more categories makes it easier to track expenses and target our progress.


4. Assign a monthly spending limit to each category. Crown recommends that expenses for housing (including utilities, insurance, and maintenance), auto (including insurance and repairs), and food (groceries and eating out) not exceed 70% of net spendable income. Subtract your regular bills from this income amount. Don't forget to include a monthly amount for periodic expenses. Then subtract reasonable limits for necessities like groceries, gas, and clothing. If there's any money left over, fill splurge categories like nails, cell phone, and entertainment. If the money ran out on paper before you got through all your categories, it will surely run out in real life too, so decide where to cut back.


Give yourself a few months to get comfortable with this process. If you are finding that you have more money left over in one category, or you are always running short in another area, shift your amounts around. You will also need to tweak the budget anytime your expenses or income change. In our homes, we've learned that managing our money this way doesn't feel like bondage because it does fit our lifestyle. Furthermore, the budget holds us accountable, so we are free to accomplish our financial goals according to our family's priorities.