How to Follow a Spending Plan

As a bankruptcy counselor, I routinely walk through clients’ budgets to see where their money goes each month. They will often ask “how much should I spend on food, or housing, or transportation, and so forth.” The housing figure is easy because I have heard it so many times I probably shout it out in my sleep – “Limit your housing costs to 35%!” But other numbers elude me because people’s situations differ so much.

Finally, I can offer some ideas to clients. While scrolling through one of my favorite websites, I came upon guideline percentages for spending categories that can work for anyone. Gary Foreman, who edits The Dollar Stretcher website (www.stretcher.com), has come up with realistic numbers that can help you build a budget based on what you earn, not how much you spend. Mr. Foreman, a former financial planner and purchasing manager, calls it “A Spending Plan for Frugal Living.” I like that title! The word “frugal” brings to mind a thoughtful yet simple method for setting spending limits.

Mr. Foreman offered this budget when a “Dollar Stretcher” reader asked about how much from one’s salary should she spend for various budget needs? (The very question many clients have asked me!)

Mr. Foreman quickly points out “we all have to deal with having just so much money to cover all our expenses. And, if we spend more than we take in for very long we get into trouble.” Amen to that!

Let’s simplify things

Foreman starts with net or take-home pay. He then emphasizes that his percentages are simply a guideline, “not a straight jacket.” If your spending doesn’t match his percentages, he advises not to panic or despair! The idea is to tailor your spending plan to your specific needs. And be willing to change the plan as your needs change within your life. Great advice indeed!

Notice that 65% of your monthly net income is allocated to the top 3 categories listed below (housing, food, and auto/transportation). But maybe your situation is different. For example, rather than 35%, maybe your housing costs are 45% of your net income because you live in an expensive city. But you don’t own a car so your transportation costs are only 5% of your monthly take home income. As long as your total comes out to the percentages allocated below, no worries!

Or, maybe you work at a restaurant and eat free meals several times a week. This could easily reduce your food costs because you buy fewer groceries. You get the picture – be flexible with these percentages but make sure they don’t exceed total monthly take home income.

Gary Foreman’s “A Spending Plan for Frugal Living”

Housing                      35%

Food                           15%

Auto                            15%

Insurance                   5%

Entertainment           5%

Clothing                      5%

Medical                       5%

Everything else          5%

Savings                       10%                (Bless you, Gary Foreman!)

Mr. Foreman considers savings to be “an investment for a better future,” not an expense.

Therefore, he thinks of savings after budget priorities because it is hard to save money unless there is enough to cover housing, food, and transportation to your job. Once your basic needs are met, then start saving. Maybe it won’t be 10% but save something! Even 2% can make a difference if you have a car repair or miss some work because your kids are sick.

In Gary Foreman’s world, if you are paying down debt, this could also be considered part of savings. Especially credit card debt! I could not agree more. Paying down debt should be a high priority, especially when high interest rates keep the principal balance from dropping every month. Keep in mind that if you don’t pay more than the minimum payment, you will be paying off that credit card for the next 20 years, even if you don’t charge one more thing!

Taking on too much expense

And don’t torpedo your spending plan by taking on too much expense for a car or housing. That’s where most folks get into trouble! There are endless resources available to help you determine how much you can afford to spend (think online calculators, websites, books, or even financial counseling) so you don’t find yourself in trouble down the line. Once a major purchase is done, it is very difficult to change. Get some help and do it right from the start! Call us at 888.577.2227 or visit our website at ConquerYourDebt.org. Working along side people to create a workable spending plan is what we do best!

Author Barb Miller is a Bankruptcy Specialist and Certified Financial Counselor at LSS Financial Counseling.

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