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Create the Ultimate Spending Plan

How Healthy are Your Finances ?Part5 of Series

Do you know where your money goes every month? How do you track your income and expenses? Do you even track your income and expenses? And are you really living within your means? With America’s debt concerns on the rise, creating an organized spending plan is essential for everyone.

In order to put together a successful and accurate spending plan, you need to know your numbers. By this I mean, you need to understand your current spending habits. When you are trying to lose weight, you begin by tracking the food you eat. Likewise, the first place start your spending plan is to track everything you spend. Write down everything you spend your money on for a month. Carry around a little notebook and pen with you everywhere, and anytime you spend money (cash, debit or credit card), write it down. Don’t lie, just write. This will help you realize your spending vices (those things we always find a way to spend our money on even if we know we shouldn’t), and will help you understand your spending habits.

But just like losing weight, trimming your financial fat and sticking to your economic diet isn’t always so easy. I personally dislike the word budget, because similar to the word diet, it implies you have to give up something or restrict yourself from the things you enjoy in life. In order for your spending plan to work, it needs to become part of your lifestyle, something that works with you and can change when needed. Now that you can see your trends, decide to cut back on the areas that need trimming and develop a strategy for spending that works for you.

Once you know where your money is going and where you would like it go, the next step is to actually create your spending plan.

  1. First, start by calculating your monthly net income (gross income minus taxes). If you are self- employed, calculate a monthly average.

  2. Next, add up all your fixed expenses. These include mortgage, rent, utilities, food etc. (Basically your monthly bills).

  3. Then calculate how much you want to save every month toward your goals and label this category Pay Yourself First (PYF), a term created by author David Bach.1 It is important to make sure you are saving for your goals before you use any money for variable expenses. To figure out how much and where you should be saving, it often helps to work with a CERTIFIED FINANCIAL PLANNER™... like me!

  4. Next, add up all your variable expenses. Items here would include- dining out, entertainment, travel, shopping, etc. I like to think of this category as the expenses we could cut back on if we wanted to save more toward our goals. *If you are a business owner, I recommend having a separate business fixed and business variable category.

  5. Finally deduct your fixed expenses, PYF savings, and variable expenses, and any business expenses from your net income.

Net Income

-Fixed Expenses

-PYF Savings

-Variable Expenses


Here is rought guideline as to how your income should be allocated for your different expenses :

50-60% Fixed Expenses

10-20% Pay Yourself Firsrt

20-30% Variable Expenses

5% Cushion

Once you subtract your expenses from your income you will find out if you are breaking even, have a surplus or falling short every month. You can always identify the areas where you want to trim your spending if need be. Just keep in mind that you will need to find the balance between living for today and saving for tomorrow. If you develop the Ultimate Spending Plan that works for you and allows you to save for your goals, then you are one step closer to getting your finances in shape!

Financially Wise Women Quick Tip:

Challenge yourself to track your spending for the next 30 days. Write down everything you buy and how much you spend. Once complete, analyze the information and create your Ultimate Spending Plan.


1. David Bach, author of Smart Women Finish Rich. Link to-