TOPICS LESSON 3

1. Spending Plan
THE SPENDING PLAN
2. Procedures in Creating Spending Plan

LEARNING OUTCOMES
At the end of the lesson, you should be able to:
1. Explain the importance of spending plan;
2. Prepare family spending plan;

TOPIC 1: SPENDING PLAN

A spending plan is a document used to determine

the cash flow of an individual or family. A personal
spending plan, similar to a budget, helps outline
where income is earned and expenses are incurred.
When paired with a financial goals worksheet, the
personal spending plan can be used to create a
roadmap for monitoring spending, as well as helping
determine the most appropriate methods for saving.

Breaking Down Personal Spending Plan. A personal spending plan is a different take on
the traditional budget. While many people may be familiar with their sources of income,
such as a salary from a job, fewer know the patterns associated with where that income
is spent. A family may want to integrate a household spending plan in order to track
what each member of the family spends and find ways to save or budget funds. The
personal spending plan is often more detailed than a standard budget because it
requires more information about each item. By documenting and categorizing all
sources of spending, individuals and families can better understand whether funds are
being spent on items that detract from their ability to save for and reach their financial
goals.

Making Financial Goals with a Spending Plan. Financial goals are integral to making a
personal spending plan work. Financial goals, such as saving money for a vacation, or
buying a new home, help individuals determine how much money should be diverted
from living expenses into savings and investing. It is not necessary to use a financial
planner to make a spending plan, it can be as simple as using a spreadsheet. Reporting
all spending is necessary to keep an accurate and detailed account of each category of
spending, like groceries, school-related fees, or entertainment. Some experts
recommend families or single person households spend a month or two recording all
their expenditures before embarking on a spending plan. In doing so, it is likely possible
to make realistic financial goals, when it comes time to implement a spending plan. 

A spending plan (also called a budget) is simply a plan a

person can create to help him meet expenses and spend
money the way he want to spend it. A good spending plan
can help stop “spending leaks”; in other words, it can
keep from spending money without thinking. It can help
to make sure that there is money to pay bills on time,
even when the bills and income change each month.

A spending plan or budget includes:

 Money coming in – paychecks, tips, loans, scholarships, child support, and other
cash benefits
 Money going out – regular monthly bills, like housing, groceries, utilities,
clothing, child care, car payment, credit cards, doctor bills
 Goals – money set aside for emergencies, replacing the vehicle, a family trip,
medical co-pays, paying off credit card debt, retirement, education, or other
future expenses

Using a Spending Plan. The spending plan is a way to direct the financial resources.
Look at the resources, and decide where would be of the most benefit. Rather than
looking at where to have to cut back, as this would with a budget, consider what
expenditures would help to reach the long-term financial goals. A spending plan might
include money put into a retirement account, funds set aside to help others, or it might
encompass saving up for a vacation. A spending plan can be created to bring in line with
the goals. As part of the spending plan, decide on what to spend money on each month.

TOPIC 2: PROCEDURES IN CREATING THE SPENDING PLAN

Start a Spending Plan

A spending plan gives the control, the plan will clearly show how much money is coming
in, what are the spending and where to make trade-offs to come up with extra cash. It is
also the first step in meeting larger financial goals. To create a spending plan, take the
following steps: 

Add up Review plan

Add up Subtract List other Match money
household’s and priorities
monthly expenses financial with expenses
monthly take- every few
expenses. from income. priorities & goals
home pay. months

Financial planning experts all agree that there are three sustainable ways to get monthly
cash flow in line in a spending plan so that household expenses (including savings) are
less than or equal to income:
 increase income,
 reduce expenses,
 do a little of both.
Spending plans should balance the “bottom line.” In other words income should equal
expenses, including savings. It generally takes several attempts to get the numbers to
balance out. This is perfectly normal and to be expected. A well thought-out spending
plan is essential for financial success. Without a spending plan, the money is not likely to
make it where a person wanted it to end up.

Spending Plan
Step 1. What are your financial goals? The first step in building the spending plan requires to
write down the financial goals. One method of doing this is to think about what is wanted to be
achieve financially within a certain number of months. What do is wanted in the future? What is
wanted right now? If the goals are to be achieved in a time less than a year away, then those
goals are classified as short-term goals. If the goals will require more than a year to achieve,
then they are long-term goals.
Include the following information which are helpful in each financial goal:
 What is the money going to be used for?
 How much money is required?
 By what date do you want to do this?
Short-Term Financial Goals (less than a year from now)
Purpose? Amount of money? By when?
1.  
2.    
3.    
Table 1.1

Long-Term Financial Goals (more than a year from now)

Purpose? Amount of money? By when?
1.    
2.    
3.    
Table 1.2

Add up the money required for the short-term and long-term goals, these totals show what to
be achieve with the money. Before setting the goals aside and moving to the next step, read
the goals again and see if they are SMART goals. SMART stands for goals that
are Specific, Measurable, Attainable, Realistic, and Timely. If the answer to the three questions
(purpose, amount of money, and by when) then, the financial goals written were specific and
measurable. Attainable goals are ones that actually have an end point.
Realistic goals are ones that are based on the actual financial situation. Setting too high a
standard can make less confident about reaching it. Timely goals are ones that coincide with the
needs; plan to have the money by the time it is needed. Writing SMART goals will help insure
that a person will be able to reach the spending goals. It takes commitment and effort to make
financial goals a part of the daily life.

Step 2. Where is your money going? In order to manage money, there is a need to know
where the money is going. What do to buy? What monthly expenses? What are the different
ways to spend and encumber (make a promise to pay) money? There is a need to know where
the money is currently going (what you are buying or paying for) in order to create a spending
plan. A simple no-cost method of tracking the spending is by recording the expenses on paper.
Start with a plain sheet of 8.5” x 11” paper. Fold it in half from side to side, lengthwise. Then
fold it in half again two more times to create eight sections on each side. Label the first seven
sections with each day of the week. Label the last section “Totals.”
To use: re-fold the paper to the current day. Carry it with and make a note of each item
purchased and how much paid for it. Do not forget to record purchases put on the debit or
credit cards. Record the purchases every day for a month. Total the expenditures by category in
the eighth section. This information will be helpful in Step 4 so be sure to keep the paper in a
safe place like a file, a large envelope, or a box.
 Daily expenditures for a week.
Monday Tuesday Wednesday Thursday
Lunch 4.75 Gas 10.00 Barber 8.00 Lunch 4.85
Groceries 15.32 Lunch 4.85 Soft drink 0.75 Movies 8.50
Friday Saturday Sunday Totals
Lunches: 16.95
Groceries: 15.32
Snacks (food): 9.34
Lunch 2.50 Cleaning supplies: 8.67
Laundromat
Cleaning Pizza 8.59 Laundromat: 6.50
6.50
supplies 8.67 Gas: 10.00
Barber: 8.00
Movies: 8.50
Total = 83.28
Table 2.1
Tips to make sure the tracking of expenditures is complete and accurate:
It is ideal if there is a record on spending each day for a whole month (usually four weeks). If
more than one person in the family is spending, each person needs to do this exercise. Add all
the expenditures together at the end of the week. After writing down the daily expenditures for
a week is completed, add other expenditures made by check or automatic withdrawals from the
checking account to pay bills. Make a list of these expenditures and add them to the totals for
the week.

Other expenditures by check and automatic withdrawal.

Checks written this week: Automatic withdrawals this week:

Rent—485.00 Gas company—35.00
Groceries—86.50 Electric company—85.00
Day care—165.00 Water bill—15.00

Table 2.2
The table below provides a chart to total all the major categories for the month to track
expenses by the week. The categories may be different from the example given, so change them
to fit the actual expenditures. A plain sheet of paper or a page of notebook paper can be used to
list the expenditures, as in the chart below. The far right-hand bottom box on the chart will be
the grand total for the month. It should equal the total for the columns above it and equal the
total of all the weeks across the bottom. This chart will be helpful in completing Step 4 as well
as showing what bills (auto loan, rent, utilities) needed to be paid in which weeks of each
month.
Table 2.3.
Amounts Spent by Week
Categories Week 1 Week 2 Week 3 Week 4 Week 5 Totals
Groceries          
Eating out            
Snacks            
Entertainment (movies)            
Gas (for car)            
Personal (haircuts, grooming, etc.)            
Rent            
Car payment
Utilities (gas, water, electric, etc.)
Day care
Clothing (new, dry cleaning, repairs)
Other
Totals
Step 3. How much is your total income? This step will determine the total monthly income. It
is important to know the gross income (before any deductions are taken from pay or wages) for
income tax purposes. But for this step, determine the net income, or what is left after
deductions have been made from the wages or paycheck. The net income is the amount of
money a person control to purchase the needs and wants as well as money to save. Income is
available from different sources. By filling in this chart, the sources of monthly income can be
totaled. If salary is weekly, then add in the four or five paychecks received for the month
selected. If paid is made every two weeks, then add in two or three paydays for the month.
(Some months will have three paydays. Treat that as extra money for savings or other goals.)

Table 3
Monthly Net Income from All Sources
Source: Amount: Php
Source: Amount: Php
Source: Amount: Php
Part-time income: Amount: Php
Part-time income: Amount: Php
Child support/Alimony: Amount: Php
Public assistance/Food stamps/: Amount: Php
Unemployment/Disability: Amount: Php
Social Security: Amount: Php
Retirement/Pension: Amount: Php
Money from relatives: Amount: Php
Other: Amount: Php
Other: Amount: Php
Total of all above amounts Php

Step 4. How much are your fixed and flexible expenses? This step helps to record all the
expenditures each month. There are two major types of expenses in a spending plan. They are
“fixed expenses” and “flexible or controllable expenses.” Fixed expenses are those that usually
pay on a regular basis. They may be the same amount each time, or they may vary from month
to month. Many fixed expenses are paid every month, but others have to be paid every three
months (quarterly), every six months (semiannually), or every year (annually). Here are some
common fixed expenses:
 Child care
 Rent or mortgage
 Household bills (water, electricity, phone)
 Installment plans (car, loans)
 Insurance premiums
 Deposits to savings account

Flexible expenses are those that usually vary in amount from month to month. Since these are
not committed to previous agreements with others for these amounts, there is more control
over these expenses than for fixed expenses. When squeezed financially, it can be cut back on
flexible expenses or even cut some out. Flexible expenses can include the following:
 Food (groceries, eating out)
 Clothing (new clothes, clothing repairs, dry cleaning)
 Transportation (gasoline, car repair, public transportation)
 Medical care (doctor bills, medicine)
 Education and recreation (books, magazines, movies, entertainment, vacations)
 Personal care (haircuts, manicures)
 Gifts and donations (birthdays, holidays, charity)
Flexible expenses usually vary from month to month. People who keep spending records for the
first time are often surprised by how much they spend on things they do not really need or
want. As better control is gain over flexible expenses, there will be an easier time covering the
fixed expenses, avoiding late penalties, and achieving the financial goals. There are four tables
that are provided to assist in calculating the total expenses. Follow the directions below for each
of the tables.

Table 1 is designed to list all the monthly fixed expenses. If some of the expenses are paid
other than monthly (such as a quarterly car insurance payment or a semiannual homeowner's
insurance premium), use Table 3 to convert the payments into monthly payment
amounts. Do not total the categories until Table 3 is completed.

Table 4.1.
Monthly Fixed Expenses
Expenses PhP per month Expenses PhP per month
Housing   Insurance1  
Rent/Mortgage   Health  
Cable TV   Life  
Water   Automobile  
Electricity   Home  
Fuel   Other  
Phone   Subtotal PhP
Other      
Subtotal PhP Savings  
    Payroll Deduction  
Installment Debts   Christmas Club  
Furniture/Appliances   Set Asides  
Car   Other  
Loans   Subtotal PhP
Other      
Subtotal PhP Other  
    Tithes  
Child Care   Other  
Babysitter   Subtotal PhP
Nursery/Day care      
Other      
Subtotal PhP    
1
If these are not paid monthly, see Table 3 for instructions on how to calculate the monthly amount.
Table 2 is designed to list all of the monthly flexible expenses. It maybe totaled when
categories have been listed in this type of expense.
Table 4.2.
Monthly Flexible Expenses
Expenses PhP per month Expenses PhP per month
Food & Other Items   Medical Care  
Groceries   Doctor's bills  
Restaurants   Prescriptions  
Cigarettes   Therapy  
Pet Food   Other  
Cleaning/Other supplies   Subtotal PhP
Other      
Subtotal PhP Education/Recreation  
    Books/Magazines  
Clothing/Personal Care   Movies/Music  
Purchases   School Supplies  
Repairs/Alterations   Vacations  
Dry Cleaning   Other  
Accessories   Subtotal PhP
Hairdresser/Barber      
Other   Gifts & Donations  
 Subtotal PhP Birthdays  
    Holidays  
Transportation   Charities  
Public Transportation   Other  
Maintenance (Tune-ups)   Subtotal PhP
Operation (Gas, Oil)      
Other (Tags & Licenses)      
Subtotal PhP    
Table 3 is to be completed to make the record of expenses more complete. Think about the
types of expenses listed and how often payments are made. If to make these payments
monthly, then list that amount under the proper category in Table 2. If a quarterly payment
(four times a year) is made, list that amount under the "amount paid quarterly" column. If to
make only two payments a year, list that under the "amount paid semiannually" column. Do this
for all the payments that are made other than monthly. The calculation chart following Table 3
gives directions for converting these kinds of payments into monthly amounts (to be listed in
the "calculated monthly" column). List these same monthly amounts under the proper
categories in Table 1. Then add all of the categories in Table 1.
Table 4.3
Additional Fixed Expenses
Frequency of Payment Calculated Monthly
Category Amount Paid Amount Paid Amount Paid Expenses (see note
Quarterly Semiannually Annually below)
Insurance:
Auto        
Life        
Home        
Health        
Disability        
Other        
Taxes        
Licenses        
Regular
       
savings
Short-term
       
goals
Long-term
       
goals
Other        

Table 4 is a final chart to list and add categories to get a grand total of all the expenses. This
total will be used in Step 5. Remember, these tables are only meant to help make the first
spending plan. You may add and delete categories to make the tables fit the exact expenditures.
Use Tables 1 and 2 to record and total your fixed and flexible expenses. These expenses are
calculated by the month. These amounts can be determined by using your receipts, bank
statements, check register, and other records.
Table 4.4
Grand Total of Monthly Fixed and Flexible Expenses
Expenses PhP per month
Fixed Expenses  
Housing  
Installment Debts  
Child Care  
Insurance  
Savings  
Other  
Calculated Additional Monthly
 
Expenses from Table 3
Total Fixed Expenses PhP
   
Flexible Expenses  
Food & Related Items  
Clothing & Personal Care  
Transportation  
Medical Care  
 Education/Recreation  
Gifts & Donations  
Other  
Calculated Additional Monthly
 
Expenses from Table 3
Total Flexible Expenses PhP
Grand Total of Expenses
PhP
(add totals of two boxes above)
In order to make the record of expenses more complete, the need to list those payments that
may not make every month. An example would be an auto insurance that is paid quarterly (four
times a year) or homeowner’s insurance you pay semiannually (twice a year). Think about these
types of fixed expenses and fill in the chart provided in Table 3.

Note: To get a monthly amount for the expenses listed in Table 3 above, use the following
calculations:
 If the payment is made quarterly (four times a year), divide the amount by 3.
 If the payment is made semiannually (twice a year), divide the amount by 6.
 If the payment is made annually (once a year), divide the amount by 12.

List these amounts in the last column of Table 3 above and also in Table 1. Table 4 provides a
chart for you to total your fixed and flexible expenses for a monthly grand total of expenses. This
is the amount of you will need each month to cover all your expenses.
Table 4. By completing all these charts in Step 4, you should have a complete determination of
your total expenses per month.

Step 5. Are you living on what you make? Now that income has been calculated (Step 3) and
totalled the fixed and flexible expenses (Step 4), it is time to do another calculation. Determine if
the total expenses do not exceed total net income or if the total expenses exceed total net
income.

Use Table 1 if you think your total income is more than your total expenses. Use Table 2 if you
think your total expenses are more than your total income.

Table 1. 
Total Income (Step 3) PhP
Minus -
Total Expenses (Step 4, Table 3) PhP
   
Total Surplus PhP

Table 2. 
Total Expenses (Step 4, Table 3) PhP
Minus _
Total Income (Step 3) PhP
   
Total Deficit PhP

If you used Table 1, the amount of surplus (unspent money) is available for you to use for
additional savings or to reach your short- or long-term goals. For example, you can save all or
part of it; you can purchase something with the money; or you might use it as an extra payment
on an installment loan or mortgage.

If you used Table 2, you have deficit spending. This is the amount of money you must subtract
from your expenses in order to keep from spending more than you make. Return to the flexible
expenses page in Step 3 and determine which categories you can reduce or cut out. The total
adjustments to the categories must be equal to or greater than this total deficit. This will help
you monitor your expenses in coming months so you do not overspend your budget.

Do this step monthly after purchases and paid bills are made. If you have to use Table 2, then
you are overspending for your income. Make a plan to adjust your spending for the current and
coming months so you will get back on budget. It will be increasingly difficult to reach your
short- and long-term financial goals if you continue to overspend. Deficit spending usually
results in debt that becomes difficult to pay off. You can change your spending plan. Review
your income, debts, and spending. Take a hard look at your flexible expenses. Control your
flexible expenses by reducing the need for them or adjusting what is spent on them.

Review the financial goals in Step 1. Are you contributing money monthly to them?  Remember a
simple rule: If it helps reach the goals, do it. If not, don’t! Review all of the expenses, and then
ask the following questions (or similar ones, as necessary). Is this really how you want to spend
your money? How much is maintenance costing on the car? How much is the auto insurance?
Could money be save by doing more cooking at home instead of eating out? Is buying gift
necessary for all those relatives? Consider the gifts that do not cost money, such as doing an
activity with them or helping them do something around the house they cannot do themselves.

To become more creative at acquiring goods and services. Here are some ideas:
 Share. Share ideas, items, and skills with others. Buy in bulk and split the cost
with a friend when it can save money.
 Trade. One can swap or trade products or skills. Trade things that do not need by
selling or exchanging them.
 Repair or make it. It may be cheaper to make or repair it if a person has the
skills, time, and supplies needed.
 Shop around. Buy from sales, secondhand stores, or discount stores.
 Negotiate for lower prices.
 Pay bills on time. It saves money because businesses charge late fees for
payments after the due date.

Step 6—Sticking to the plan. Spending plan can be modified, if the income
increases, add the amount to the income sheet in Step 3 and Step 5. If the spending
is reduce, subtract that amount on the appropriate tables in Step 4 and Step 5. This
will allow to compare the new total income and expenses in Step 5. To make
spending plan, a financial management tool, there is a need to complete the
following tables (Table 1 and Table 2) at the end of each month after all bills have
been paid. By comparing the planned expenditure amount with the actual amount
spent in each category, you can quickly see if you are staying on budget.

If the actual amount is equal to or less than the planned amount, then it is staying on
budget. If the actual amount is more than the planned amount, then it is overspending.
Go back to Step 5 to see if ways to cut expenses. Then make those cuts in Step 4 so not
be over budget next month. Tracking the expenditures in this manner each month will
quickly get back on budget if you make the necessary adjustments. Tracking
expenditures will also help to find out exactly how much can be spend and save to
achieve the short- and long-term goals. Get into the habit of keeping and organizing
your records. Keep receipts, bank statements, pay stubs, and check registers in a safe
place. They are important for your spending plan and at income tax time. Keep your
spending records simple and in a convenient place. You will want to refer to them
periodically throughout the year as suggested in these steps. You may also want to
compare your spending from year to year. Make a totals page that adds together all the
monthly expenditures for each category. (You can use the categories found in Step 4.)

Then compare year to year, try to eliminate unnecessary expenses. And review the
financial goals. Does more money need to be directed toward your goals and less money
toward current expenses? What expenses can you cut down on or eliminate? Pay bills
on time. That saves the money because there is no need to pay late fees. It also builds
the credit rating. Remember to review your spending plan each month by using the
following tables. They will help you stick to your spending plan so you have money
available to put toward your financial goals. Reaching your goals will provide great
satisfaction as you practice better money management.

ASSESSMENT:

A. Prepare your own spending plan following the given procedures.