When we talk about making a realistic Money Plan, we are not talking about some budget you write at the beginning of the year and then never look at (much like a New Year’s resolution). We are talking about a real plan for your money that you can stick with, because just like a diet, it’s not going to do you any good if you don’t actually stick with it.
To successfully do this we need to:
Once you have identified the above factors we can get down to the nuts and bolts of making our Money Plan. (Head to our articles “Let’s talk about Money” and “Does Money Equal Happiness” for more on working out your values, beliefs and personality).
Lets do this!
Step 1. Work out a reliable monthly income (what you are certain will come in each month). What do you earn and when do you earn it?
Step 2. Work out your non-negotiable expenses. Things like transport, food, utilities, housing etc. These are a priority. There may be ways to reduce the amounts you’re currently paying. But these must be provided for as paramount.
Step 3. Create a Pinch Fund. This a fund that you can pinch money from if you get in a pinch and we recommend having between $1,000 to $2,000. You can have it in cash at home or in the bank. But keep it quickly accessible and separate from all your other funds so you don’t spend it (unless you are in a pinch).
Step 4. Agree with your partner on other spending priorities. Allocate the remaining money to expenses in order of priority until 100% of available funds are allocated or you have provided for all your expenses. If there are funds left over, allocate this to paying down debt, or if you are debt free toward saving for investment and retirement (we will talk about debt and savings in more detail in upcoming articles).
Step 5. Find a method that works for you which keeps track of how you are going with your Money Plan. This might be recording every dollar you earn or spend in an accounting program, creating different bank accounts for different expenses, or putting cash in different envelopes or jars for specific expenses. The important point is that it needs to work for your life and your personality (and your partners, if you have one) because you’re going to need to stick with it.
Another point that begs a mention, is that if you tend to overspend, get rid of credit cards (including payday loans, store cards and zip pay). By removing access to credit, overspending is not an option for you anymore.
Whoever ends up taking the lead it is essential that you both are fully engaged in the process. The Money Plan belongs to both of you and you both need to commit to it.
Step 6. Give yourself grace with the process. Don’t expect your Money Plan to work perfectly to start with and be prepared to change the plan as necessary. Your Money Plan needs to be living and changeable because life changes and, let’s be honest, we don’t get things perfect the first time. For example, if you have not set enough aside for food – change this amount and take from another category of less importance. But remember, you need to stay in agreement with your partner and your Money Plan must always balance (you cannot add to an area without decreasing another).
Keep motivated with your Money Plan by keeping it connected to the bigger picture of your life, the “why” behind what you are doing. Set time aside regularly (weekly is great) to talk about your finances, reviewing the money plan and adjusting it so that it works with your lifestyle, keeping each other accountable and celebrating your victories as you journey closer to where you want to be.
Creating your Money Plan is step 1 to financial control. For the next step we will develop our Debt Escape Plan. This is a plan for getting rid of consumer debt (credit card debt, store debt, car loans etc) as this sort of debt, in my opinion, is the leading cause of finances feeling out of control. Once we have escaped debt we can then actually start our plan for building Lifetime Wealth.
