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Publication #FCS5204

Your Financial Action Plan1

Adapted by Josephine Turner and Michael Gutter2

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Overview

Families today are faced with a financial puzzle. In addition to stretching their income from one paycheck to the next, they face the necessary task of planning for future financial needs. It is easy to get caught up in everyday living, and forget to look ahead. A secure financial future requires setting goals and carefully managing your money so goals can be met.

This lesson is designed to help you and your family create a financial action plan that will enable you to make wise decisions now about your future financial success. When you have completed this lesson, you will have:

  • Assessed your family’s values

  • Learned how to set and reach specific spending goals

  • Identified your income and spending patterns with an eye toward developing a budget

This lesson ends with a brief introduction to developing a savings plan, which is discussed later in this series. After completing this lesson and the accompanying worksheets, you should be well on your way to understanding your spending patterns, so that you can take control of your budget and your future.

What's Important to You?

Before you can make your financial dreams come true, you need to think about what things are important to you and your family. The values you identify will help you to determine the direction you take with your finances. The following list identifies some items important to families. Pick out the items most important to you and your family and place a “1” beside them. Place a “2” by the items that are somewhat important. Place a “3” beside the things that aren’t very important.

_____religion

_____education

_____food/recreation

_____club memberships

_____hobbies

_____insurance

_____friends

_____prestige/family/vacation

_____making lots of money

_____starting a new business

_____family activities

_____paying off debts

_____health

_____culture (theater, movies, dance recitals)

_____household furnishings

_____savings

_____outdoor activities (camping, hiking)

_____personal appearances (clothes, shoes, hair)

_____job success

_____entertainment

_____new home or condominium

_____transportation (car, boat, fishing equipment, trucks)

_____investing for retirement

_____other:_____________________________

Now compare your list with your checkbook or spending receipts. Are you spending money on the things that are really important to you and your family?

Do you and your family agree on your spending values and patterns? It’s hard enough for one person to decide what items are the most important. It’s even harder when two or more people who share money have to decide where the money should go. That is why it is important for all family members to openly communicate about their spending priorities. Communication and joint decision-making are especially important when it comes to your family’s budget, savings, and use of credit.

Financial Forecasting

You need to look into the future and see where you want to be before you get there. Create a list of your family’s financial goals. It might look something like this:

  • Home ownership

  • Higher education for yourself and/or your children

  • Cash reserve for emergencies in case of unemployment, illness, or family emergency (The reserve should equal 3–6 months of expenses.)

  • Decreased debt load

  • Reserve money for special needs (e.g., house down payment, house remodeling, family vacations, braces for children’s teeth, etc.)

  • Adequate insurance against loss

  • Retirement income

Financial goals should identify what you want to do with your money in a given period of time. Goals give you direction and a purpose for the way you spend your money. Think about the things you want your money to do for you now and in the future. Think about your short-term, intermediate, and long-term goals.

Short-term goals are what you want to get done in the next day, week, month, 6 months, or year. Intermediate goals are what you want to accomplish in the next 1–5 years. Long-term goals are what you want to accomplish in more than 5 years. All goals should be SMART:

  • Be Specific

  • Be Measurable

  • Be Adaptable

  • Be Realistic

  • Be Timely

What constitutes a goal? A statement such as “I want to save money” is too vague to be a goal by itself. It becomes a realistic financial goal by adding a dollar amount and a time frame. For instance, “I want to save $25 a week for 12 months.” However, an actual goal depends on an individual’s or family’s income and values. A goal statement should answer what, when, and how much?

Use Worksheet 1 to help you and your family decide what your financial goals are.

Income and Spending Analysis (Cash Flow)

After you have listed your goals, you may question if it is possible to realize any of them and still pay day-to-day bills. To answer that question, you need to know your family’s cash flow.

Your cash flow is the flow of money into your pocket and out again. How well do your income and expenses match? That sounds simple, but few of us take time to see what comes in and goes out each month. Use the “Cash Flow Worksheet” (Worksheet 2) to list your income and your expenses for one month. List all of your monthly income, including your salary, tips, child support, alimony, tax refund, dividends, interest from investment or savings accounts, capital gains from investment sales, and income for rental property or royalties.

Also, keep a record of your expenses for the month. Use check stubs and receipts to monitor your spending. Include your fixed and flexible expenses. Fixed expenses are rent or mortgage payments, installment loans, insurance payments, and other regular payments. Flexible expenses are the budget items you have more control over. These include food, clothing, entertainment, utilities, etc.

When income exceeds expenses, you will have money to put in your savings program. If your income does not exceed expenses, see what you can do to increase your income or decrease your expenses. Look at your budget to see if you can eliminate some expenses. Perhaps you can reduce your flexible expenses? Be honest with yourself. Most expenses that are not fixed can be reduced, even if only a little bit.

Plan Your Spending

The key to financial comfort and future financial success is budgeting. In this manner, you control your money instead of your money controlling you. With just a few months of disciplined spending, you can reverse overspending, free extra money for savings and investments, and build a cash cushion for emergencies. A budget is a boundary for your spending. When you allow $73 a week for food, you have set a spending boundary. A complete budget can be used to determine spending guidelines.

Spending Guidelines

Making spending guidelines equal to a percentage of your income may be useful when you examine your spending patterns. Just remember that spending guidelines are for comparison purposes only. They are not hard and fast rules. One family may choose to spend 40% on housing and less on clothing, credit, and transportation, while another may choose to spend more on transportation and less on housing. See Table 1 for common spending guidelines in the United States.

Essential living expenses (shelter, food, clothing) and transportation account for approximately three-fourths of take-home pay. Complete spending guidelines will account for 100% of your income, regardless of how it is divided. You can compare your take-home pay to a pie. If you cut one slice too big, all the other pieces will have to be cut smaller or else you will have to borrow to make ends meet. The pie can only go so far.

Table 1. 

How Much Should We Spend?

On average, Americans spend the following percentages of their income in each category:

Food

13%–15%

Education/Recreation

0%–10%

Housing

32%–42%

Gifts/Contributions

0%–10%

Child Care

15%–25%

Misc./Emergency

2%–10%

Clothing

3.8%–4.2%

Savings

0%–10%

Personal

2%–5%

Insurance

0%–11%

Transportation

17%–18%

Medical

6%–7%

How to Make a Budget

Do you have a written plan that guides your spending? If not, use Worksheet 3 or the Money Management calendar to plan a monthly budget. List what you plan to spend as well as what you actually spent. Use check stubs and receipts to verify your spending. As you develop your plan, see if you have allowed enough money for the following items that pertain to you:

  • Major expenses. Future goals such as adding rooms to your home, buying a car, paying for your child’s education, gifts, or furniture.

  • Emergencies. Unavoidable costs such as medical expenses, auto accidents, unemployment, car repairs, house repairs, and appliance repairs.

  • Irregular or periodic expenses. Occurring annually or sometimes more often, such as school supplies and clothes; house, car, health, life, and disability insurance; registration fees, uniforms and pictures for children in groups, such as football, baseball, and basketball leagues; family vacations; birthday and holiday gifts; taxes and license plates.

  • Debts. Such as past-due bills and credit card debts.

  • Monthly expenses. Basics such as savings or investment, rent or mortgage, utilities, household supplies, food, contributions, installment payments, and medicine.

  • Daily expenses. School lunches, snacks, transportation, and meals out.

  • Miscellaneous expenses. Dues, subscriptions, laundry, clothing purchases and repairs, movies, recreation, and personal care.

Plan for Savings

When making your budget, it is a good idea to plan for savings first. You can grow richer each month if you pay yourself a regular amount first. For instance, each month before you pay your bills, put 10% (or whatever amount you can afford) of your net pay into your savings fund. If you do this at the beginning of the month, your entire paycheck will not slip through your fingers. But, if you wait until the end of the month, there may not be anything left to save. Paying yourself first gives you an automatic, systematic way to make your money grow. Regardless of your occupation or your income, this system works. And remember, as you become used to less money in your budget to spend, you can always increase your savings fund in small amounts to add to your savings. This type of monthly deposit can also be accomplished through a payroll deduction. Check with your employer to see if such a plan is available where you work. If not, then check with your financial institution to see if they will transfer the funds to your savings account each time you get paid.

Another option is to consider putting a portion of a pay raise into a savings account. Also, you can empty your change into a can at the end of every day. Then at the end of the month, roll the coins and put them into your savings account. Consider saving your tax refund or other “windfalls” that you experience. Lesson 5 offers more information on options for saving and investments.

Review Your Spending

After establishing a plan for spending and saving, you need to carry it out. Keep track of your expenses to see that you are following the plan. If not, or if you have unplanned expenditures, be prepared to make adjustments. If you need more than you earn, you must either increase your income or decrease your expenditures.

Summary of Suggested Activities to Start Your Financial Action Plan

Schedule a family get-together. Have each person write down one specific spending goal. Then, select a family goal for this year. Discuss a plan for reaching each goal.

  • Identify your total monthly income.

  • Keep a record of all your spending for a month.

  • Develop a spending plan for the year and stick to it.

Tables

Worksheet 1. 

Family Goals

Briefly describe goals:

Goals

Total cost

Cost per month

Target date for goal completion

Short-term goals (within the next 12 months)

     
       
       
       
       
       
       
       

Intermediate goals (within 1–5 years)

     
       
       
       
       
       
       
       

Long-term goals (more than 5 years)

     
       
       
       
       
       
       
       
Worksheet 2. 

Cash Flow Worksheet

Month________________ Year_______

Income

Amount

Salary and tips

$

Interest, dividends, pensions

$

Child support

$

Other:

$

Total Monthly Income

$

Expenses

Rent or mortgage

$

Utilities (telephone, water, electricity, Internet, gas)

$

Food

$

Transportation

$

Clothing

$

Medical

$

Insurance

$

Education

$

Child Care

$

Credit

$

Savings

$

Recreation (entertainment, cable, membership dues, etc.)

$

Religious donations, charities

$

Other:

$

Total Monthly Expenses

$

Income Less Expenses

$

Worksheet 3. 

Yearly Plan and Spending Chart (January–June)

Month

January

February

March

April

May

June

Amount of Income

         

Expenses

Plan

Spent

Plan

Spent

Plan

Spent

Plan

Spent

Plan

Spent

Plan

Spent

Alimony/child support

                       

Business expenses

                       

Child care

                       

Clothing

                       

Laundry/dry cleaning

                       

Contributions

                       

Education, self-improvement

                       

Food and groceries

                       

Alcohol and tobacco

                       

Meals eaten out

                       

Gifts

                       

Hair care/cuts

                       

Home furnishings, equipment

                       

Household maintenance/help

                       

Insurance

                       

Automobile

                       

Disability

                       

Home

                       

Life

                       

Medical

                       

Property

                       

Dental

                       

Other

                       

Miscellaneous

                       

Monthly Bills

                       

Auto payment

                       

Credit cards

                       

Cable TV

                       

Department stores

                       

Loans

                       

Rent or mortgage

                       

Spa and health club

                       

Other

                       

Pets

                       

Recreation/entertainment

                       

Savings, investments

                       

Transportation (bus, taxi)

                       

Gas

                       

Vehicle maintenance

                       

Utilities

                       

Electricity

                       

Garbage

                       

Telephone

                       

Water and sewer

                       

Other

                       

Total Expenses

                       

Income Less Expenses

                       
Worksheet 4. 

Yearly Plan and Spending Chart (July–December)

Month

July

August

September

October

November

December

Amount of Income

             

Expenses

Plan

Spent

Plan

Spent

Plan

Spent

Plan

Spent

Plan

Spent

Plan

Spent

Alimony/child support

                       

Business expenses

                       

Child care

                       

Clothing

                       

Laundry/dry cleaning

                       

Contributions

                       

Education, self-improvement

                       

Food and groceries

                       

Alcohol and tobacco

                       

Meals eaten out

                       

Gifts

                       

Hair care/cuts

                       

Home furnishings, equipment

                       

Household maintenance/help

                       

Insurance

                       

Automobile

                       

Disability

                       

Home

                       

Life

                       

Medical

                       

Property

                       

Dental

                       

Other

                       

Miscellaneous

                       

Monthly Bills

                       

Auto payment

                       

Credit cards

                       

Cable TV

                       

Department stores

                       

Loans

                       

Rent or mortgage

                       

Spa and health club

                       

Other

                       

Pets

                       

Recreation/entertainment

                       

Savings, investments

                       

Transportation (bus, taxi)

                       

Gas

                       

Vehicle maintenance

                       

Utilities

                       

Electricity

                       

Garbage

                       

Telephone

                       

Water and sewer

                       

Other

                       

Total Expenses

                       

Income Less Expenses

                       

Footnotes

1.

This document is FCS5204, one of a series of the Department of Family, Youth and Community Sciences, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida. Originally published July 2001 as Show Me the Money, Lesson 1. Latest revision May 2013. Please visit the EDIS website at http://edis.ifas.ufl.edu.

2.

Josephine Turner, PhD, CFP, former faculty member, and Michael Gutter, PhD, associate professor, Department of Family, Youth and Community Sciences, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, FL 32611.


The Institute of Food and Agricultural Sciences (IFAS) is an Equal Opportunity Institution authorized to provide research, educational information and other services only to individuals and institutions that function with non-discrimination with respect to race, creed, color, religion, age, disability, sex, sexual orientation, marital status, national origin, political opinions or affiliations. For more information on obtaining other UF/IFAS Extension publications, contact your county's UF/IFAS Extension office.

U.S. Department of Agriculture, UF/IFAS Extension Service, University of Florida, IFAS, Florida A & M University Cooperative Extension Program, and Boards of County Commissioners Cooperating. Nick T. Place, dean for UF/IFAS Extension.