Step 5: Create a Monthly Spending Plan

The first four steps focused on getting you out of debt and stopping debt-creating habits. The next four steps will focus on taking a proactive approach to budgeting, saving and growing your income. But in order to get to your final destination – a debt-free life – you need a spending plan to serve as a road map and show you the way.

Part 1: The Monthly Budget Plan Worksheet

You need to develop a new spending plan for each month, which details your estimated monthly expenditures. Each plan should be completed 15 days before the month starts so that you won’t be caught off guard and will have time to cut expenses or generate additional income where needed.

It’s a good idea to create a bare-minimum spending plan in order to free up as much money as possible for repaying debt. Print out the worksheet below to help you plan out your monthly budget.

Download the monthly budget plan worksheet
You need the Adobe Acrobat Reader to view the contract. Download it here.

Now that you have the worksheet, you can do the following:

1. Note any special events on your calendar that may cost money.
2. Make the best estimate of your upcoming bills and other needs for the month. Modify the payments in each category to determine the minimum you could spend without feeling utterly deprived.
3. Include your savings and resources for emergencies.
4. Calculate your cash flow. How much remains after you subtract the total monthly expenses from the monthly net income?
5. Plan for Murphy’s Law” – the idea that anything that can go wrong, will. Compensate for this by adding an extra 10 percent to your spending plan.
6. Put the remaining cash toward your debts.

Part 2: Monthly Budget Percentages

Use the following percentages as a rough guide for allocating your take-home pay. Remember, these percentages should be taken from the part of your income that you bring home, not your gross income.

• 35% Housing
• 15% Debt
• 15% Transportation
• 25% Expenses
• 10% Savings

Here are some examples of what you might list under each category:

• Housing
  • Mortgage/rent
  • Utilities
  • Insurance
  • Home maintenance
• Debt
  • Student loans
  • Credit cards
  • Installment loans
  • Personal loans
  • Tax debt
  • Medical debt
• Transportation
  • Car payment
  • Auto insurance
  • Maintenance
  • Gasoline
  • Parking/tolls
• Expenses
  • Food
  • Clothing
  • Entertainment
  • Travel
  • Childcare
  • Medical expense
  • Tithing
  • Charity
• Savings
  • 401(k)
  • College savings fund
  • Emergency cushion

Part 3: Assign Paychecks to Expenses

If you get paid more than once per month – say twice a month, or maybe every two weeks – you need to determine which bills to pay from which paycheck. Check all of your bills and plot their due dates on your calendar. Pay as many bills on time as possible from each paycheck. Certain expenses, like groceries or entertainment, should be allocated per pay period. For example, if your monthly plan is $400 and you get paid on the 1st and 15th, you can allocate $200 per check.

Don’t worry if your first month doesn’t go exactly as planned. Budgeting is a process and fine-tuning is necessary. If one month’s plan doesn’t work, then adjust the plan to accomplish your goals in the next month.

Step 5 Summary

You can now create a monthly spending plan by:

• estimating and plotting your monthly expenditures
• allocating certain percentages of your take-home pay toward specific budget categories
• assigning your paychecks to specific monthly expenses

Congratulations! That’s the end of Step 5.

Now you’re ready to go on to Step 6: Grow Your Income

or go back to step 4

Budget Resources

• Lexington Law Firm
• Instant Online Debt Consolidation – Free Quote!