Learning How To Use An Allocated Spending Plan
A few weeks ago, I shared with you how to do a Zero Based Budget. Feel free to go back and review that article here. A week after that, I detailed how to budget an irregular income. You can find that article here. Those are the two big pieces to budgeting for true financial wellness. But there is a third component that stretches your money to new levels.
The Income Allocation Plan
It’s called an Income Allocation Plan. When used with a zero-based budget, you have all the tools you need to tell every single penny of your money just what to do…and when!
It is not uncommon for our class members to have a full understanding of one of the forms and completely miss the importance of the other. They soon realize they are missing something however; and the light bulb of their zero-based budgeting process comes on quickly when we review both forms together.
How to Use an Income Allocation Plan
An Income Allocation Plan is best used AFTER a full zero based budget is created for the month. It’s incredibly difficult to budget each pay check when you don’t know the full context of the month.
It’s equivalent to designing the layout of kitchen cabinets before you know where the kitchen will be located. You can spend a ton of time doing it and it will most likely look gorgeous, but how useful will it be?
So start your Income Allocation Plan after you have completed the zero-based budget. Click the button for a copy of the zero-based budget. If you need to review how to use it, click here.
Now that your zero-based budget is completed, you will use the same expense categories and divide them out according to your pay checks.
Breaking Out Expense Categories
Think about these things as you divide out your expense categories for each paycheck:
- When is the expense due?
- What else will be due around the same time?
- How much is available to allocate from this pay check?
- What can wait to be funded until later in the month?
- What needs to be funded THIS month because it is due BEFORE the first pay check of next month is received?
Download your copy of the Income Allocation Spreadsheet. I've included a sample budget breakout on the first tab to help you get a visual of how to use it.
NOTE: the full amount for groceries, gas and some other categories are not split equally between the two checks. Keep your mind open to odd funding amounts in order to make sure that you get each pay check to zero.
Proverbs 27:23 says to "know well the condition of your flocks, and give attention to your herds." It may have originally referred to livestock, but today it's referring to every penny in your checking account!
When you follow through with this plan each month, you will be amazed at how much more traction you get with your money. And since today is April 28, why not try it out on the May budget?
It may take you a couple of attempts to get it to zero, but the time spent will be worth it. I bet you'll find more money than you expected! And you'll quickly see some areas that would benefit from being tightened. Use your bank statement for the last few months to guide you to your category amounts.
When asked what's the one thing that I recommend to someone who is serious about managing their money, I do not hesitate before I say a zero-based budget. This income allocation spreadsheet is the secret sauce that will make the most of your zero-based budget!
Would love to hear about your experiences using the spreadsheet (or why you don’t think you need to). Log in to share your thoughts below. Click here for tips on how to log in.
Until next week…be well…be encouraged.