How to Set Up an Allocated Spending Plan
How to Set Up an Allocated Spending Plan Skip to content
Most people are paid weekly, every other week, or once a month. If you are paid weekly, some months you will receive five paychecks, and if you are paid every other week, some months you will end up with three paychecks. Therefore, planning according to paycheck as opposed to every month can help you allocate your money more smoothly.
Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now 2. Allocate Your Spending for Each Pay Period
Next, look at the obligations you have within each pay period. Because I invoice my freelance clients twice a month, I divide up my expenses between those periods. Bills with due dates between the 2nd and the 15th of each month come from income received at the first of the month. For example, my mortgage is automatically deducted on the 15th, so I pay for it with money from the first of the month. All expenses from the 16th of the month through the first day of the next month are allocated from my second paycheck. Groceries, expected spending on gas, and everything else can be easily allocated this way as well. 3. Don’t Forget to Save
One of the beauties of this spending plan is that you allocate for savings as well. Direct money toward your retirement account, emergency fund, summer vacation fund, and accounts for other financial goals. If you have payments that are made irregularly, you can allocate for those as well. For example, if you know that your child’s extracurricular activities are going to cost you about $300 a year, plan to spend $50 for six pay periods to meet the cost. They don’t have to be consecutive pay periods and you can choose whichever ones will work best. Planning ahead is one of the hallmarks of the allocated spending plan. 4. Allocate “Fun” Money
Remember to allocate “fun” money. This includes money spent on entertainment, eating out, and purchasing video games and books. Many people also like to allocate splurge money to be used on whatever they want. This way, you don’t have to know exactly where every dollar is going, but you can still plan for it. 5. Write It Down
Your allocated spending plan can be hand-written or drafted on a spreadsheet on your computer. Additionally, you can look online for different allocated spending plan templates. These often provide examples of how others have set up their plans as well. Remember that the allocated spending plan is meant to be a little flexible. It’s designed so you can tweak it if your expenses or your pay changes. Yet, it allows you to address your most important spending priorities first. You can also see how to improve your savings rate and make sure that preparing for the future is built into your spending plan.
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By Miranda Marquit Date September 14, 2021FEATURED PROMOTION
Tracking what you spend is an essential element to financial planning. But it is most valuable if you use the information to better direct your financial resources going forward. One way to do this is to create an allocated spending plan. With such a plan, you decide where every dollar you make goes before you spend it. The ultimate objective is to have a purpose for all of your money and to optimize your cash flow to best meet your long-term financial goals.How the Allocated Spending Plan Works
An allocated spending plan is a type of budget and is fairly straightforward. Each pay period, you simply allocate your money to different purposes. Here are the steps to creating one: 1. Figure Out Your Income for Each Pay PeriodMost people are paid weekly, every other week, or once a month. If you are paid weekly, some months you will receive five paychecks, and if you are paid every other week, some months you will end up with three paychecks. Therefore, planning according to paycheck as opposed to every month can help you allocate your money more smoothly.
Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now 2. Allocate Your Spending for Each Pay Period
Next, look at the obligations you have within each pay period. Because I invoice my freelance clients twice a month, I divide up my expenses between those periods. Bills with due dates between the 2nd and the 15th of each month come from income received at the first of the month. For example, my mortgage is automatically deducted on the 15th, so I pay for it with money from the first of the month. All expenses from the 16th of the month through the first day of the next month are allocated from my second paycheck. Groceries, expected spending on gas, and everything else can be easily allocated this way as well. 3. Don’t Forget to Save
One of the beauties of this spending plan is that you allocate for savings as well. Direct money toward your retirement account, emergency fund, summer vacation fund, and accounts for other financial goals. If you have payments that are made irregularly, you can allocate for those as well. For example, if you know that your child’s extracurricular activities are going to cost you about $300 a year, plan to spend $50 for six pay periods to meet the cost. They don’t have to be consecutive pay periods and you can choose whichever ones will work best. Planning ahead is one of the hallmarks of the allocated spending plan. 4. Allocate “Fun” Money
Remember to allocate “fun” money. This includes money spent on entertainment, eating out, and purchasing video games and books. Many people also like to allocate splurge money to be used on whatever they want. This way, you don’t have to know exactly where every dollar is going, but you can still plan for it. 5. Write It Down
Your allocated spending plan can be hand-written or drafted on a spreadsheet on your computer. Additionally, you can look online for different allocated spending plan templates. These often provide examples of how others have set up their plans as well. Remember that the allocated spending plan is meant to be a little flexible. It’s designed so you can tweak it if your expenses or your pay changes. Yet, it allows you to address your most important spending priorities first. You can also see how to improve your savings rate and make sure that preparing for the future is built into your spending plan.