7 Step Strategic Spending Plan for the New Year

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With many Americans still waiting for pay raises after years of flat wages, people need to learn to do more with the money they have. The key to building wealth in this environment is to save more and spend less, but doing that requires making a plan and sticking with it, according to New York Times Bestselling Author Pamela Yellen.

“Setting financial goals is the first step toward getting the financial peace of mind you want and deserve,” Pamela says. “The second crucial step is your personal Strategic Spending Plan.”

A Strategic Spending Plan is not the same as a restrictive budget. It’s a living, organic strategy that helps you know where your money is going and make adjustments as appropriate – one that encourages new habits and ways of thinking about the big picture of your life, Pamela explains.

“An effective spending plan understands that how you feel about what you spend – your emotional satisfaction – is every bit as important as the dollars,” she says. “Your success with a spending plan is gauged by how well you move toward your goals and by the satisfaction you feel with how you spend your money.”

Pamela details 7 steps to take control of spending and achieve financial goals in 2015:

  1. Create a Strategic Spending Plan Worksheet with two columns marked current income and expenses and strategic spending plan income and expenses. List categories such as household expenses, personal expenses, debt payments, transportation, entertainment – and don’t forget taxes! Also, create a section in each column for your new financial goals.
  2. Figure out Your Starting Point: Fill in your current expenses, using estimates if you don’t have specific numbers. Try to capture everything, from dry cleaning to your morning latte to car maintenance. Add up all of your expenses and write down monthly and annual totals.
  3. Compare Expenses to Income: Calculate your current total monthly and annual income. Subtract your current expenses from that number to get your bottom line cash flow. If your expenses are higher than your income, don’t despair! In the next steps, you’ll discover ways to get back in balance and reduce your stress.
  4. Pull out Your Financial Goals: Your financial goals should have specific numbers attached to them. Fill these in the “Goal” section of your Strategic Spending Plan column. Look at each item in “Current Expenses” and ask yourself if it really supports your new goals. For example, having a reliable car probably supports your ability to get to work and earn a living. But having an expensive luxury car with high lease payments? Does that really support your savings goal? Without passing judgment, just checkmark expenditures that directly or indirectly support your financial goals. Put question marks next to expenses that don’t.
  5. Rate Emotional Satisfaction: Review your expenditures for the pleasure and satisfaction they give you. Rate them from 1 to 10. For example, if getting expensive haircuts really makes you happy, it’s a 10. But if buying a coffee every morning is just a habit, it might be a 2. Maybe you’d rather stick a fork in your eye than clean your own house but mowing your own lawn again would be no big deal. Mark a satisfaction rating next to each current expense.
  6. Ch-ch-ch-changes! What changes could you make to your current spending to support your goals and give you more satisfaction? Start with the easy stuff – things you don’t really value and that don’t support your goals. Next, look at expense items that have some value to you but don’t really support your goals. Finally, fill in expense items that won’t be changing, such as your mortgage or property taxes. Total them all up.
  7. Are We There Yet? Almost. In the “Cash Flow” box, add together your “New Total Expenses” and your “New Total Goals.” Compare this figure to your “New Total Income.” How did you do?

“Most of us don’t quite hit the mark the first time through. Don’t give up! Keep using this process. Get creative and think strategically about your spending,” Pamela says.

About the Author: Pamela Yellen is a financial investigator and the author of two New York Times best-selling books, including her latest, The Bank on Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future. Pamela investigated more than 450 financial strategies seeking an alternative to the risk and volatility of stocks and other investments, which led her to a time-tested, predictable method of growing wealth now used by more than 500,000 Americans. 

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