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Step Four, is to review and adjust your spending plan, it's the final
step in our Spending Plan process and it's the step that generates
success! First, review your spending plan. Do you have the same
amount coming in as going out? Does your plan include an
emergency fund? Savings? Any other personal goals? If you have
more going out than coming in, or you don't have medical
insurance or an emergency fund, then your spending plan needs
work. If you can't balance your spending plan, then your options
are to reduce spending, increase income, or a combination of
both. If you're on a fixed income, see our Fixed Income Financial
Tips. For everyone else, look first for any non-essential expenses
you can reduce or cut. Unless you move, you probably can't
change what you pay in rent or on the mortgage. But food, cable,
phone, clothing and other variable expenses are usually areas that
can be reduced. Comparison shop, can you save money by
switching service providers? Can you reduce any services that are
not necessary? There are times when we have to take a hard look
at the way we live. Every money leak you can stop, every cent you
trim helps you reach your financial goals! If you still can't balance
your spending plan after cutting your expenses, look for ways to
earn more income. Can you get a second job? Perhaps rent a
room in your home? Finally, are you willing to make drastic
changes to achieve your financial goals? You may have to make
hard choices. But there are always choices! This all sounds a little
grim though, doesn't it? Well, I’m here to tell you that as you
make changes and take control and reach your financial goals, it's
important to have a little fun. We all need an occasional treat.
Something to look forward to, I used to like to go to fancy coffee
bars. I like the way they smell, I like the music and the cushy
chairs, I like all the shakers of stuff to sprinkle on top of your
coffee. But it become a money leak for me. So instead of cutting
out something I really enjoy, I made it a treat instead of a habit.
Now I treat myself to a coffee place once in a while. I don't feel
deprived, but I save a lot of money. And I actually enjoy my coffee
house visits MORE -- because now they're rare, so they're more
special. Another key to keeping your spending plan on the road
and preventing any wrong turns is to keep proper financial
records. Okay, did I hear a groan??? It's not that bad, I promise. I
know getting started can be hard. I think there are two main
reasons that people have trouble keeping good financial records.
One is, not having an organized system. And the other is not
knowing what to keep. To begin keeping financial records, you
may want to set up a filing system. The two main types of
financial records everyone should keep are those for taxes, and
the records needed to monitor your spending plan. Tax records
generally include the tax return and supporting documents such
as W-2’s, 1099’s, bills, receipts, invoices, mileage logs, canceled or
imaged checks, mortgage interest information, retirement plan
contributions documentation, and charitable donation receipts. In
other words, all proof of income and records to support all the
deductions or credits you are claiming on your income tax return.
The IRS has three years from your filing date or the date of an
amended return to audit. However, if the IRS thinks you
underreported your gross income by 25% or more, they have 6
years from the date of filing to challenge the return. There is no
time limit if you failed to file a return or filed a fraudulent return.
We therefore recommend keeping most tax records 7 years from
the last date of filing, indefinitely if you have not filed a return.
Keep the W-2’s until after you retire, as proof of social security
contributions. You will only need them if you believe you’re
entitled to a larger social security benefit once you retire. When
you are ready to discard old documents, remember to shred
them. This will keep them out of the hands of any potential
identity thieves. There are some circumstances that require
keeping records for a longer period of time. For instance records
related to a business or rental property, retirement accounts,
home purchase or sale, these should be kept indefinitely. Keep
the annual statements from any retirement funds and brokerage
accounts you own and any receipts for stocks and for large
purchases that you are insuring or planning to insure. Additional
information on tax record keeping is available from the IRS at
www.irs.gov Keep the actual bill only if you need it for tax
purposes. For those records needed for your spending plan, a
spreadsheet is better because you’ll need the information, but
won't need the actual bill. Keeping a spreadsheet is a good idea
for two reasons: One: It's easier to view your spending per
category if you have it on one spreadsheet. And Two, the less
paper you have, the more organized and in control you'll feel.
Record keeping isn't hard; it's just a new habit to learn!
Remember, your spending plan, tracking your spending, and
record keeping are all habits that will give you the control to reach
YOUR financial goals. Now let's have a quick review of the steps to
create your own spending plan. First, figure ALL net income, and
do a little math to accurately convert it to a monthly average.
Second, do the same thing for expenses. Convert your Variable
and Periodic Expenses into monthly averages. Third, track your
expenses to discover money leaks. Record every penny you spend
for at least a month. Fourth, once you've identified money leaks,
or an imbalance in your spending plan, make adjustments to fix
the problem. Create a spread sheet to track your spending. And
keep financial records for taxes for at least 7 years. Now, I want
each of you to ask yourself --- what is your number one financial
goal? Take a minute. Write it down. Got it? Okay. With that goal
in mind, I just ask you... is achieving that goal worth doing the
work to make an accurate spending plan? The 30% of people who
do are much more successful. And the bottom line is your success.
There's no get-rich-quick way to reach your goals. The Spending
Plan is work, but it's the vehicle that'll take you to where you
want to be. And it'll get easier, in a few months, it'll be second
nature. Making an accurate spending plan, tracking spending and
reducing money leaks are all work. But for the spending plan to be
a success, you need to REVlEW it often and adjust your spending
accordingly. So once you've created your Spending Plan, don't let
it sit in a drawer! Review it, at least once a month. Track your
progress, and adjust it when you need to.