Don’t Budget; Adopt A Spending Plan Instead Calculate Monthly Income, Spending, Then Fine Tune

Don’t put yourself or your family on a budget - adopt a “spending plan” instead.

The suggestion, which comes from a national association of financial planning advisers, has an appealing logic to it.

For many people, budgeting doesn’t work, in the same way that dieting and other regimens often don’t work, because it sets impossible goals and collapses when subjected to the stresses of real life.

If you have tried and failed to follow a budget, suggests the Institute of Certified Financial Planners in Denver, consider instead “a plan that emphasizes spending, not budgeting. It’s really pretty simple to do.”

Rather than constructing a rigid model of how you think you ought to be operating, a spending plan starts with calculating your actual monthly income and outgo.

In one column on a sheet of paper - or in a personal computer program - you list all the income you receive for the month in question.

Then you make a separate list of all your expenses by category. This should include prorated amounts for expenses you pay annually, semiannually, or quarterly, such as car insurance premiums or property taxes.

“Record those slippery cash expenditures,” the institute adds. As much as credit card debt and other burdens, unmonitored expenditures for day-to-day needs and wants can be a serious drain on your resources.

After you have kept these accounts for two or three months, the institute says, match the income total against the expense total.

If you are spending more than you are making, or just unsatisfied with the share of income that you are able to save, you can scan your list of expenses to see what is the most likely place to start cutting.

Maybe brown-bag lunches could be substituted for some of the fast-food expenditures. Or maybe you could read something borrowed from the library instead of the magazines you’ve been buying.

It really doesn’t matter much which expenses you choose to reduce. The point is to find a way to manage your cash flow better.

“Controlling cash flow - what money is coming in and going out - is often what determines the success of reaching our goals,” the institute observes.

“Many people don’t know where their money goes. They may be earning more than they were a few years ago, yet they don’t feel their lifestyle is improving.

“Their money is in charge of them, not the other way around.”

With all the changes that have taken place in the ways people manage their money in recent years, how much you can manage to set aside is still the main question.

Once you have gone through the exercise of analyzing your spending, the financial planners’ institute concludes, periodically make sure you’re keeping expenses in line with spending.