THE BABY-STEP SPENDING PLAN

In this post, I'm going to talk about creating a spending plan.

We'll start with a very rudimentary plan, created by following the 4 steps outlined below. Remember, it's more important to have a plan you can easily follow than to rush into making the perfect spending plan. After all, the goal is to develop habits which will last you a lifetime.

STEP 1: Find out what you currently spend your money on.

Before you start planning how to spend your money, it's important to know your current spending pattern. So note down everything you buy over a typical week.

STEP 2: Identify what you really need.

Take your records from Step 1, and divide the items into two lists:

a) Basics List
Put the items which are absolutely necessary on this list. Be honest when making the list -- make sure you don't sneak in items that should count as luxuries. For most young people, the list may include food, drinks, commuting costs (petrol or bus/train fares), and other expenses related to school.

b) Luxuries List
This may include items like CDs, magazines, snacks.

STEP 3: Work out your budget.

This part is just simple arithmetic. Total up everything on your Basics List, and use that amount as a guide to start your first simple budget.

For example,
If your Basics add up to $35 every week, and you have $45 every week in your Spend Box, that means that your Spending Plan should look like this - $35 for Basics every week, and $10 for Luxuries.

Step 4: Stay within that budget.

Now that you've worked out your how much you can spend on what, just do this one thing. Use the simple plan you worked out in Step 3, and keep track of what you spend on Luxuries and make sure you never spend more than what you've budgeted.

There's of course much more to great money management than this, and we'll deal with those in later blog posts. The important thing is to make a 'baby step' and make sure you that you keep on walking. If you do fall, pick yourself up and start again.

As you master this one thing -- putting a cap on your spending on Luxuries -- you'll be more prepared to learn how to make the larger steps we'll be discussing later.