KEY TAKEAWAY: While many may view a “budget” as being restrictive, a Money Plan is a power tool that supports your financial empowerment and freedom. It helps you use your financial resources strategically, avoid the financial shackles and stress that can be created when you live beyond your means, and work intentionally toward the financial goals that support your life goals. Scroll down to the TAKE ACTION section for this week’s actionable steps.

Oscar Wilde was once quoted as saying, “Anyone who lives within their means suffers from a lack of imagination.” However, I would venture to say the opposite: That the person has a pretty good imagination and can clearly envision what happens when they don’t within their means.

Living within our means is a key tenet of financial well-being, and it is something that impacts our overall well-being because when we don’t, not only can it dig us into a financial hole that typically only gets bigger over time and more difficult to climb out of, but it is STRESSFUL.

That probably comes as no surprise to you if you have ever been or are in the position of wondering if you’ll make it to the next payday or the panic when an unexpected expense arises. You know the tight, nauseating feeling oh too well.

Unfortunately, it is a feeling that too many of us are likely experiencing. As of September 2022, 63% of Americans were living paycheck to paycheck, and 60% couldn’t cover the cost of a $1,000 emergency with cash from their savings.¹ In fact, 30% of American adults were without any emergency or rainy day funds at all.¹

And even if we are not in the situation I described above, we can still feel stress when it comes to our finances for other reasons. For example, even though we may not be worrying about having enough money to keep the lights on or find funds to repair our car that broke down, we may not feel as in control of our finances or as confident as we’d like about the progress we’re making toward our financial goals.

So, how to avoid the financial stress, feel more in control of our money, and confident that we’re making the progress we desire toward our goals?

The answer is to have a Money Plan.

The Money Plan

Note that I did not say Budget.

For many of us, myself included, the word budget can have a negative connotation. It can make us feel like we’re on a financial die-t, which, like a food diet, can make us feel deprived from the get-go because, by default, it signifies restriction. It’s difficult to stick to something when you feel deprived or restricted, whether it’s what food we feel we can eat or what money we think we can spend.

So, I want to switch the lens through which we view this because the purpose of a Money Plan is not about restriction or deprivation.

It is not meant to be a form of self-denial or punishment.

Rather, it is a form of self-empowerment.

It is you recognizing that you have finite financial resources and choosing to be strategic about how you allocate those resources to best work for you and what you want.

It is you choosing to take control and put yourself in the driver’s seat of your financial present and future.

In fact, not only is it not about restriction, but in fact, it’s about freedom, because when we aren’t in control of our finances or don’t live within our means, it is the equivalent of financial shackles.

So, whether you want to feel less financially stressed, stop living paycheck to paycheck, or save for a dream goal, a Money Plan is a tool you use to achieve what you want.

Do You Need A Money Plan?

So, do you need a Money Plan? Here are some signs that you do:

• You’re living paycheck to paycheck.
• You frequently overdraw your bank account.
• You’re struggling to pay bills on time.
• You’re accumulating credit card debt.
• You don’t have any savings or emergency fund.
• You’re not sure where your money goes each month.
• You feel stressed or anxious about your finances.
• You have a tendency toward impulse spending or overspending.
• You’re relying on loans or credit to cover regular expenses.
• Money is a source of conflict in your family or partnership.
• You avoid looking at bank or other financial statements.
• You want to feel more in control of your finances.
• You want to feel more confident that you’re making progress toward your financial goals.

How to Create A Money Plan

If you ticked off one or more of the boxes above, the next step is to create a Money Plan. So, how do you do that?

Step 1: Figure Out Your Actual Income & Expenses.

Track your actual cash flow — the actual amount of money that is coming in or that you’re earning — and the amount of money that is going out for different things, such as expenses. I talk about how to do this in Cash Flow: Your Power Tool to Achieve Your Financial Goals. But, basically, you pick a Cash Flow tracking tool that most fits you and use it to track what money is coming in and going out.

Examples of cash flow tools you can use include the following;

• A notepad, pencil, and calculator
• A spreadsheet
• A more high-tech tool, for example, the Empower Dashboard (I use this, combined with an Excel spreadsheet for historical tracking and planning, to track my net worth and cash flow, aggregate my investments, and do investment and retirement planning) or one of the many apps that exist, such as YNAB (You Need A Budget), Every Dollar, NerdWallet, Goodbudget, and Rocket Money just to name a few.

Step 2: Establish Your Financial Goals.

What are your financial goals? They could be to live within your means, to put some money aside for a rainy day fund to cover unexpected financial events, or to save for another goal, such as retirement, your child’s education, or to pay down debt. Which goal or goals do you want to work on first? If you want to delve more deeply into this, refer back to my message Put Your Financial Stake in the Ground.

Step 3: Create Your Money Plan.

Working from your actual cash flow from Step 1, adjust the different money-in and money-out categories to reflect the targets that you want to set for each. In other words, you will take your actual cash flow and make changes to the different cash flow items according to the changes that you will make to reach the targets you set. That may be to adjust your income, certain spending items, or how much money you plan to allocate to different financial goals.

As you adjust categories, don’t forget about irregular expense items that may not have shown up in the actual cash flow statement that you’re working from. For example, you may pay some expenses on an annual basis, such as your homeowner’s insurance or property taxes, some items on a semi-annual basis, such as your auto insurance, or others on a quarterly basis, for example, your homeowner’s association fees. In other words, make sure to incorporate all known items that demand your financial resources throughout the year, not just what shows up on a monthly basis.

Also, as you create your Money Plan, take this as an opportunity to view each spending category through the lens of “want” vs “need.” What are you spending most of your money on and how much is driven by need vs. want? Some items have elements of both. For example, food is necessary for survival, but not all food is essential, and the same goes for clothing, and even the car we drive or house we live in.

Looking at your spending through this lens is powerful because it helps you see where you have room to flex your spending or where savings opportunities exist. It also gives you more perspective because you can assess what is necessary and what is not, what is adding value to your life or adding stress, and what is helping you work toward your goals or making it harder.

Review Your Money Plan

After you have created your Money Plan, take a step back to review it. How does it look? Is it doable? Is it something that works for you and that you feel you can follow through on?

What about your goals? How much are you planning to save, use to pay down debt, or achieve another goal? Do you have money left over at the end of the month that you can use to work toward other goals? If you have more money going out than coming in, what changes can you make to fix that?

Your Money Plan is only as good as your ability (and willingness) to implement it, so make sure that it is realistic, doable, and a plan you can get behind so that you will follow through on it.

And Remember: Your Money Plan is not static. You can and will adjust it as needed as circumstances, needs, or your goals change. But for now, make sure your plan is a good starting point and reflects what you know right now and believe is a plan you can follow.

Step 4: Monitor and Adjust.

Regularly review your actual cash flow and compare it to what you had planned in your Money Plan. As mentioned, your Money Plan, like your life, isn’t static, so make adjustments as needed, either in your actions or your plan, to make sure it makes sense and works for you and your goals.

Tips to Implement & Stick to Your Money Plan

You’ve come up with your Money Plan. Now what? How can you implement and stick to your Money Plan?

Find What System Works Best For You.

What will help you track and stay on track with your Money Plan? We are all different, so what helps me stick to my Money Plan may be different from what helps you.

For example, does the cash flow tracking tool you used in Step 1 work for you, or would some other tool make it more likely for you to track your cash flow and stick to your Money Plan?

Perhaps it would help you to employ the envelope method. This is where you set aside a certain amount of money each week in a real or virtual envelope to spend on different items — such as for groceries, dining out, or entertainment — and you stop spending when the envelopes are empty. For example: Once the dining out envelope is empty, you opt for cooking at home.

Alternatively, you may find it easier to use the 50/30/20 rule, where you allocate 50% of your income to necessary expenses or needs, 30% to more discretionary expenses or wants, and 20% to your goals, such as paying down debt or working toward a savings goal. (And if you don’t like digging into numbers and details, you may find that automatically allocating 20% of your income to your goals and living on the remaining 80% works best for you.)

Finally, if a Money Plan makes you feel like you’re on a financial die-t, then think about how you can structure it so that it doesn’t. Think about what you resist most about having a money flow plan, and structure it in a way that will help you stick to it without feeling deprived, such as allocating a certain amount of money that you can spend freely every month as you wish.

Set A Schedule for Regular Reviews.

Pick a day each month — or more regularly if you prefer — to review your actual cash flow to what you had planned. Is your actual net cash flow higher or lower than you had planned? What is driving the difference? What do you need to adjust going forward?

Make It As Automatic As Possible.

Set up automatic payments for bills to avoid late fees or interest charges and ensure timely payments. For example, automate your credit card, utility, mortgage, and loan payments.

Pay yourself first. Set up automatic transfers to accounts you have for your goals — such as to your rainy day fund savings account, retirement account, or taxable brokerage account. This way the money works for your goals and you don’t miss it because it’s gone before you see it. Paying yourself first is a power money tool that helps to ensure that you save consistently.

Build Your Support System.

Find an accountability partner or support group to share your goals and set up regular checks to review progress and discuss challenges. For example, you could create an in-person budgeting group or one on social media where members share tips and support each other.

Involve your family in discussing financial goals and the Money Plan to achieve them together. In that way, you make sure that everyone is on the same page and working together. Schedule regular meetings to review finances and talk about what’s working or what’s not working and needs to be addressed. Make it fun by celebrating successes together, such as planning a special game night or family outing.

Don’t forget the kids! Include your children. Doing so will not only get them engaged but teach them about money, something that will help them later as they become financially independent adults. For example, give them chores to do for an allowance that they can then save for toys or other things they like or use for desired activities.

Stay Motivated.

Help yourself stay motivated by setting achievable targets and planning rewards to celebrate when you hit them. For example, you might treat yourself to an evening where you will pamper yourself with a bubble bath, pedicure, special dinner you cook, or watching your favorite TV show or movie.

You can also support your motivation by doing what can reinforce your goals or desire to achieve them, such as by reading personal finance books or blogs or attending a financial workshop or webinar on budgeting or investing.

Address Financial Sticking Points.

Identify triggers. For example, if you tend to make impulse purchases, what prompts that behavior? Do you notice that you tend to shop when you’re stressed or bored?

Develop coping strategies to manage the trigger that don’t involve money, such as taking a walk, exercising, or engaging in a hobby that doesn’t give you the urge to spend.

Implement a “waiting period”; for example, if you see something you want to buy — so not something that is needed — wait 24 hours before buying it to see if you still want it. (I’ve been doing this for years, and probably 99.9% of the time, I don’t buy the thing I thought I wanted.) Similarly, set a day in the week to review online shopping carts before checking out, such as reviewing your Amazon cart every Sunday to make sure you still need the items in your cart.

Get Additional Help When Needed.

If you are struggling or feel you need support with your finances, don’t just keep struggling. Financial stress is real and corrosive, not only financially but also to your overall well-being. So, get the help you need. Support is available, both free and paid.

For example, there are government programs and nonprofit organizations that can help with a variety of issues. I’ll include some resources after the Reference section below. You can also hire a financial coach to help you with money management or a financial planner to guide you on a wider array of financial topics, including money management, insurance, investments, and tax or estate planning.

The solution that will best fit you will depend on your unique situation. However, if you are struggling in an area of your financial life, there is no better time than now to get the support you need. Doing nothing will not make the situation go away, but being proactive can help to address issues and alleviate the financial stress you are probably feeling.

Final Thoughts

Remember, a Money Plan is not about restricting yourself, but about empowering yourself to take control of your finances and work towards your goals, and it’s a flexible tool that you can and will adjust as your life and circumstances change.

So, whether you’re looking to reduce financial stress, stop living paycheck to paycheck, or save for your dreams, a Money Plan can help you take intentional action to get there. The key is to start now and be consistent.

And don’t be discouraged if the numbers are not what you want them to be. This is a step-by-step process, and by doing this work, you are taking a powerful step to take control and work toward your goals.

So, take the first step today and start using a Money Plan. Review your income and expenses, set your goals, create and implement your Money Plan. Your present and future self will thank you for the financial peace of mind and progress towards your goals that it will give you.

TAKE ACTION:

1. Decide if a Money Plan would help you take control of your finances or work more intentionally to achieve your financial goals.
2. Create your Money Plan by figuring out your actual cash flow (money in and money out), establish your financial goals, create your plan adjusting your actual cash flow to support changes you expect to make to achieve your goals, and monitor and adjust as needed.
3. Help yourself implement and stick to your Money Plan by finding the system that best fits you, regularly reviewing your actual cash flow to your Money Plan, making the process as automatic as possible in terms of both bill payment and paying yourself (your goals) first, building your support system, doing what keeps you motivated, addressing financial sticking points you may have with money, and seeking out additional help when needed.

REFERENCES:

1: Zippia. “How Many Americans Live Paycheck To Paycheck? [2023]: Income Insecurity Statistics In The U.S.” Zippia.com. Nov. 7, 2022, https://www.zippia.com/advice/how-many-americans-live-paycheck-to-paycheck/

RESOURCES:

Government Programs: Find out if you are eligible for any government assistance programs. A helpful resource to do this can be found at Benefits.Gov. Government assistance programs include:

• Unemployment benefits (https://www.dol.gov/general/topic/unemployment-insurance)
• Nutrition assistance through the SNAP program (Supplemental Nutrition Assistance Program; https://dhs.dc.gov/service/supplemental-nutrition-assistance-program-snap)
• Affordable housing assistance through HUD (U.S. Department of Housing and Urban Development; https://www.hud.gov/topics/rental_assistance)
• Housing, food, child care, and job training assistance through TANF (Temporary Assistance for Needy Families; https://www.acf.hhs.gov/ofa/programs/temporary-assistance-needy-families-tanf)
• Heating, cooling, and utility bills assistance through LIHEAP (Low Income Home Energy Assistance Program; https://www.acf.hhs.gov/ocs/low-income-home-energy-assistance-program-liheap)
• Office of Child Care with resources for parents: https://www.childcare.gov/

In addition to the above programs, the government has websites with helpful information, such as:

• MyMoney.gov for financial well-being topics
• Internal Revenue Service (IRS.gov) for tax questions
• Social Security Administration (SSA.gov) for information about social security benefits.

Also, reach out to your local government to understand what services and support it provides.

Religious Organizations: These can also be a wonderful source of support during difficult times, so check what services are provided by religious organizations in your community.

Other Charities & Nonprofit Organizations: Nonprofit organizations in your community or online that may offer support. Many communities have nonprofits that provide services, from providing food, shelter, emergency funds, clothing, education, and more. Search your local directory or online (for example, search “nonprofit organization helping with ______” or “need help paying my bills”).

IMPORTANT: The information provided is for educational and informational purposes only. It is not intended to be a substitute for professional advice, diagnosis, or treatment. Always seek the advice of a qualified professional with any questions you may have regarding the topics discussed here as the topics discussed are based on general principles and may not be applicable to every individual. 

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