When I talk about making a realistic Money Plan I am 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. I am 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.
In order to do this, I think we all need to get to know what I call our Money Personality.
What do I mean by this? Well basically the fact we all approach money differently.
Some of us are natural accountants with an eye for detail and order and will find working within the boundaries of a traditional money plan easy (those of us that love Microsoft Excel).
Others of us are big picture visionaries who aren’t so good with the details and will rebel against anything that confines us or puts us in a box.
Some of us are a mix of the two, and neither is better than the other!
It is important to work with and not against your Money Personality. We don’t want to try to force a square peg in a round hole… it just won’t work. And if we want to gain financial control we need it to work!
If you are in a relationship it is also important to get to know your partner’s Money Personality and discuss your financial goals and priorities together. Maybe take a second right now to talk to your spouse or partner and establish who has what Money Personality.
So, are you ready to make this happen? Read on!
Ok, so we have worked out our’s, and our partner’s Money Personality. Now it is time to actually get down to making our Money Plan.
Remember if you are in a relationship it is a good idea to let whoever is the more natural accountant take the lead in developing the Money Plan. However, if you are the visionary you must stay engaged in the process. The Money Plan belongs to both of you and you both need to be able to commit to it. Ways to keep the visionary engaged are by continuing to look at the big picture (the why behind what you are doing), getting them to contribute or change areas of the plan that they don’t feel are workable, and providing freedom within clear boundaries and accountability.
Let’s do this!
Step 1. Work out a reliable monthly income. 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 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.
Step 5. Finally, find a method that works for you to keep track of whether you are sticking within 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 Money Personality because you need to stick with it. Another point to mention is that if you tend to overspend get rid of credit cards so this is not an option for you anymore.
One final note.
Please 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. 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.
So creating your Money Plan is step one 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 one of the leading causes of finances feeling out of control. Once we have escaped debt we can then actually start our plan for building wealth.