Step 3: Fritter Finder
Once you take stock of what your current situation is, it is time to create a spending and savings plan. Your spending and savings plan should show where you want your money to go in the future. How much will you spend on clothing? How much will you set aside in your retirement fund? How much will you spend at the grocery store?
While you are creating your plan, keep in mind the golden rule of money management: your expenses (including the money going into savings) should never exceed your income. Start with the Cash Flow Worksheet. If you have a negative cash flow, you will need to make adjustments. You may still want to make adjustments even if you don’t have a negative cash flow. For example, you may want to put aside more money in savings than you are now (remember the figures you came up with in Step 1) or start sending your child to private school.
If needed, think about ways you can increase your income and/or reduce your expenses. Can you get a part-time job? Rent out a room in your house? Cut back on dining out? Skip the daily $4 mocha latte? Get a cheaper cable package or cut your land-line phone? Increasing income can be difficult, but most people have some expenses they can trim. Honestly assess what is a necessity and what isn’t. Use the Goal Per Month column in the Cash Flow Worksheet to list your spending and savings plan.
Your plan is only helpful if you follow it. Tracking your expenses on an ongoing basis will help you to see when you should stop spending because you have reached your limit in a particular category. You can use the Fritter Finder or a computer spreadsheet to track your expenses. There are also some computer budget programs that automatically track and categorize your debit and credit card purchases. If you overspend one month, try not to get discouraged. No one is perfect. If it happens often, you may need to readjust your plan so that it is more realistic. For example, perhaps you can’t keep your food costs at $150 a month, but you can cut back on your clothing purchases.