An allocated spending plan is essentially another word for “budget”. Don’t let that stop you from making one, though!
The difference between an allocated spending plan and a regular budget is that you’ll look at each paycheck individually. You will know exactly where each dollar should go from this paycheck.
Instead of planning your month as a whole, you’ll outline how to spend each individual paycheck, based on when you receive the paycheck and when your bills are due.
When to make an allocated spending plan
Each month should have its own allocated spending plan. While some expenses will be the same every month, such as a mortgage payment or your trash bill, each month will also have some unique expenses. For instance, you may want to budget for a special date night in February, or plan to spend extra money on gifts for anniversaries and weddings.
Some bills will fluctuate depending on the time of year as well. Your gas bill might be higher over the winter due to heating costs, and during the summer, your water bill may go up if you are watering your lawn.
Once you’ve made the plan for your first month, you can reference that to make the next month’s plan a little easier.
Getting started
Here are a few things you’ll need to gather up.
- Mortgage information
- Regularly occurring bills such as electric, gas, cable, trash, subscriptions, memberships, etc. (you’ll need their amounts and due dates)
- You and your spouse’s (if applicable) paycheck dates, and the amount of cash you receive from each paycheck
- Your budgeted amounts for expenses such as food, vehicle costs, clothing, eating out, healthcare, transportation costs, spending money, etc. (if you don’t have this yet, you can figure it out as a part of working on this spending plan)
Mechanics
It’s easiest to write your plan down in a spreadsheet on the computer if you’re familiar with using formulas. If not, a piece of lined paper and a calculator will work just fine.
The left-hand side of your paper will list your expenses. You’ll have two columns for each paycheck you receive in the month. If you and your spouse are paid on the same days, for these purposes, that can count as one paycheck.
At the top of your page, list the date and amount of your paycheck. Any bills with a due date in between paychecks will need to be paid from the proceeding paycheck.
In the first column next to your first expense, list the amount budgeted for the item. In the next column, list the amount remaining from your paycheck after you’ve paid for that item.
Here’s a quick example:
| Pay Date: 5/15 | Amount: $1,500 | Pay Date: 5/30 | Amount: $1,500 | |
| Expenses | Amount Budgeted | Amount Remaining | Amount Budgeted | Amount Remaining |
| Saving | $100 | $1,400 | $100 | $1,400 |
| Mortgage (due 1st) | $0 | $1,400 | $800 | $600 |
| Electric (due 7th) | $0 | $1,400 | $60 | $540 |
| Car Payment (due 20th) | $150 | $1,250 | $0 | $540 |
| Gas (due 25th) | $40 | $1,210 | $0 | $540 |
Since the mortgage payment is due on the 1st of the month, it will come out of the paycheck on the 30th. The paycheck on the 15th shows $0 for the mortgage because that paycheck will be used to pay other bills that are due sooner.
You would pay for many more items when you’re creating your own allocated spending plan. The idea is to keep “spending” your money, on paper, until the bottom number in your “Amount Remaining” column is $0. Don’t forget about giving to charity, saving for retirement, and saving for other purchases like a car or a vacation.
You should end with “0.00” in each column because every penny of your check has been either spent, saved, or given away.
Benefits of an allocated spending plan
Using an allocated spending plan is helpful because it shows you exactly where each dollar needs to go. Using this type of plan means that you’ll never be surprised by bills or accidentally run out of money when you have a bill due but are waiting on the next paycheck. You will avoid bank fees and have peace of mind because you’ll know exactly what each paycheck needs to cover.
Budgeting in this manner gives you more control over your money and allows you to see exactly where each dollar needs to go. It will help you work on your savings goals by ensuring that you are putting money into your savings or retirement accounts, rather than just hoping that you have leftover at the end of the month to invest. And finally, by paying yourself first you’ll make quicker headway on your financial goals.