How to Make a Spending Plan
3. Mold a Spending Plan
At the end of the designated time period, gather your receipts, divide them into categories (such as utilities, gas, entertainment, etc.), and compare them with the amounts you got from Step 1. You'll probably see a considerable contrast between the "predicted" and "actual" amounts. "Most people think they're spending money on necessities and don't realize how much is going to iTunes or soccer gear," says Webb-Davis.
Now that you know the real deal, deduct your total expenses from your take-home income. This will give you an accurate picture of what's coming in and what's going out. If you're in the black, good work: You should be setting aside six months' worth of expenses toward an emergency fund and another 10 percent of your income toward savings. Can't swing that much? Even $100 a month is a decent start. "Set up an automatic deposit to your savings account," suggests Amin. "You can adapt very quickly to having less money in your checking account to spend, but waiting until the end of the month to move it over is hard to do."
If you're running a deficit, it's time to get to work. Using one of the online calculators, figure out how much you'll need to reduce your spending to break even (or even save a little). Then decide how much you can cut from each flexible category. "Even expenses for necessities like food can be tweaked," says Amin. "You can change recipes, clip coupons, or use up stuff in your pantry that's been sitting there for a while." Try buying cheaper cuts of meat and using a slow cooker to tenderize them. Buy clothes at a consignment shop. Consider dropping one of your child's after-school activities.
If that sounds intimidating to you, you're not alone. One out of four parents with young kids opt not to track their money because "it's too depressing," according to an NEFE survey. But experts say that creating a spending plan by category can actually lift your spirits. "It feels a lot better knowing you've got too many expenses than being in the dark," says Seaman. "Having the knowledge and the control to make changes is very empowering." So are these great budgeting, er, "spending plan" suggestions.
a. Put in the work up front. "It takes a bit of time to break down where your money is going and to set up limits by category," says Brynn Boyd, a mom from Rochester, Minnesota. "But after that, it's not a big deal at all. We check in a couple times a month to see how we're doing. If we have a cushion for, say, going out, we'll grab a bite at a restaurant. If we're close, we'll eat in." Budgeting has enabled Boyd to stay at home with her baby—and to establish a family vacation fund.
b. Make automatic payments. Set up regular bank transfers so your fixed expenses are always paid on time, saving you both stamps and late fees. Stagger bills so you always have enough in your account to cover them. If you know your son's preschool fee is due on the first of the month, set up a car-loan payment to be withdrawn on the 15th. Try adjusting your mortgage payment so that the money comes out of your account the day after you get paid.
c. Curb your impulses. See an item you really want? Follow the approach of Erin Monahan Weisberg, a mom in East Greenbush, New York: "I stare at the object for a moment, and if I am not in love with it, I walk away. If I don't think about it again after I've left the store, I didn't really want it that badly in the first place."
d. Get creative. Having a spending plan doesn't mean you need to eliminate every diversion from your lives, but it may inspire you to come up with less-costly alternatives. Rather than taking your family to the theater, have a themed movie night at home--watch Honey, I Shrunk the Kids and make it even more fun by serving baby corn and mini burgers, and milk in shot glasses.
e. Don't blow off the little things. Something as minor as reducing your thermostat to the lowest comfortable setting during the winter months can have a major impact on your home expenses. For every degree you set it above 70 degrees your heating cost increases by 7 to 10 percent, according to Progress Energy, a utility company that services the Carolinas.
f. Be consistent. "When I go to the ATM, I always take out the same amount," says Weisberg. "Then I dole it out to myself as needed, so I'm aware of exactly how long it lasts." When she spends it more quickly than usual, she knows it's time to reconsider purchases for the rest of the time period.
g. Keep it up. Once you see the tremendous benefits of tracking your money, you won't want to return to your old way of "managing" your finances. "I'd never live without a budget again," Jody Shiermeier says. "If we won the lottery tomorrow, I'd still stick to one. It's that important to our family's peace of mind."
Originally published in the February 2013 issue of Parents magazine.