How to create a spending plan








To create a spending plan does not mean you are limiting yourself. It means you are taking control of the money God has entrusted to you. You are telling the money where to go instead of wondering where it went.


The first and foremost thing to do is to acknowledge that everything belongs to God and you are merely His steward. You do this by saying, “Lord, I know that you are the owner of things and that I am merely your steward of what you have entrusted to me. I transfer ownership of all that I have said I own to You because you are the true owner of it all.”

List your income and expenses

The next step is to identify all of the income and expenses. List all available income, including the following:


Income tax refund
Other: child support alimony, grants, retirement income, etc.

NOTE: If you operate on a variable monthly income, use a yearly average divided into 12 months.

Next, list all of the monthly expenses, starting with the involuntary fixed expenses.


Federal income taxes (if taxes are deducted, ignore this item)
State income taxes (if taxes are deducted, ignore this item)
Federal Social Security taxes (if taxes are deducted, ignore this item)


Housing expenses (mortgage payment or rent)
Residence taxes
Residence insurance

Now list the variable expenses, items that vary from month to month but that you still have to pay out each month.


Outstanding debts
Insurance (life, health, auto)
Entertainment, recreation
Clothing allowance

NOTE: In order to accurately determine the variable expenses, both husband and wife should keep an expense diary for 30 to 60 days. Every expenditure, even small purchases, should be listed.

Compare Income Versus Expenses

Couples should to try to establish a budget based on one income only. The other income should be applied to one-time purchases only—vacations, furniture, cars—or to savings or debt reduction. Oftentimes, the wife’s income is lower and might be interrupted by illness, pregnancy, or a change in the employment location.

When you subtract the expenses from the total, if total income exceeds total expenses, you only have to implement a method of budget control in your home. However, if expenses are greater than income (or if you want to have more stringent controls in spending), additional steps are necessary. If this is the case, then you need to reduce expenses. You need to perform an analysis of each budget area.

Look for “budget busters”:

“Budget busters” are the large potential problem areas that can ruin a budget. If you fail to control even one of these problems, it can result in financial disaster. In order to evaluate this area for a typical budget of $35,000 annual income (family of four), use the percentages shown below:

Please remember that these percentages are not set in stone and will vary with income and geographical location.

a. Housing (25-36 percent of net income)

Typically, this is one of the largest home budget problems. Many families often buy homes they cannot afford. Even though it is the American Dream, it is not necessary for everyone to own a home. You should base your decision to buy or rent on needs and financial ability, rather than on internal or external pressure.

You also need to take last year property tax bill and insurance bill and divide it by 12. Each month put away 1/12 of that expense into this category, so when the bill comes due you will have the money to pay for it. If your mortgage company has your Escrow account, then you do not need to do this. However, once you have 20% equity in your home, you will want to stop letting the bank earn the interest on your money and you will want to pay your own insurance and property taxes.

b. Food (10-12 percent of net income)

Avoid buying too much food or too little food. Also, don’t buy the wrong type of food. To reduce your family’s food bill you need quantity and quality planning.

Hints for Grocery Shopping

  • Always use a written list of needs.
  • Try to conserve gas by buying food for a longer time period and in larger quantities.
  • Avoid buying when hungry (especially if you’re a “sugarholic”).
  • Use a calculator, if possible, to total purchases.
  • Reduce or eliminate paper products—paper plates, cups, napkins (use cloth napkins).
  • Evaluate where to purchase sundry items, such as shampoo, mouthwash. (These are normally somewhat cheaper at discount stores.)
  • Avoid processed and sugar-coated cereals. (These are expensive and most of them have little nutritional value.)
  • Avoid prepared foods, such as frozen dinners, pot pies, cakes. (You are paying for expensive labor that you can provide.)
  • Determine good meat cuts that are available from roasts or shoulders, and have the butcher cut these for you. (Buying steaks by the package on sale is fairly inexpensive also.)
  • Try store brand canned products. (These are normally cheaper and just as nutritious.)
  • Avoid products in a seasonal price hike, substitute or eliminate.
  • Shop for advertised specials. (These are usually posted in the store window.)
  • Use manufacturer’s coupons (cents-off on an item or items) only if you were going to buy the item anyway and it is cheaper than another brand would be without the coupon. Ask if your market price matches other store’s advertised items.
  • When possible, purchase food in bulk quantities from large discount stores; the per-item cost is cheaper. Do not buy from convenience stores except in case of emergency.
  • Avoid buying non-grocery items in a grocery supermarket except on sale. (These are normally “high mark-up” items.)
  • For baby foods, use normal foods processed in a blender.
  • Leave the children at home to avoid unnecessary pressure.
  • Check every item as it is being “rung up” at the store and again when you get home.
  • Consider canning fresh vegetables whenever possible. Make bulk purchases with other families at farmers’ markets and such. (NOTE: Secure canning supplies during off seasons.)


c. Automobiles (12 percent of net income)

Do not buy new cars you cannot afford and trade them long before their utility is depleted. Typically, those who buy a new car, often only keep it for less than four years. Then, they trade it in for a new model and have wasted the maximum amount of money. Some people, such as salespeople who drive a great deal, need new cars frequently; most of us do not. Don’t swap your cars because you want to.

Get one because you need to get another car. You don’t need a new car. Buy a good used car and pay cash for it. If you have to finance it, you cannot afford it. Finance it only if your car is costing you more in repairs than would the payments on a good used car. Do not finance the car longer than three years. New cars lose 15% to 20% of their value when you drive them off the lot. Save the amount of money you paid each month for your old car and then use this money to pay cash for a good used car.

Put a little bit aside each month for repairs on the car. About 3 percent of net income is a good amount. If you need to go lower, do so but don’t drop below 1%. You can have a separate budget item called repair and replacement cost. Into it you will put the 3% for your repairs plus the money you made on monthly car payments, which you won’t have because you paid cash. Then, when you need to replace your car, you go to that amount and you pay cash for a good used car.

d. Savings (5 percent of net income)

Learn to save. You’ve heard the phrase, “Pay yourself first.” It is important to have some savings. Otherwise, when an emergency arises and you don’t have the money to pay for it, out comes the credit card and you are back to racking up the debt. You will also be able to pay for items in cash and shop for the best buys, irrespective of the store.

Savings Hints

  • Use a company payroll withdrawal, if possible. This removes the money before you receive it.
  • Use an automatic bank withdrawal from your checking account.
  • Write your savings account a check just as if it were a creditor.
  • When an existing debt is paid off, allocate any extra money toward the next largest debt. When all consumer debt is paid off, then reallocate that money to savings. This is the debt snowball method.

e. Insurance (5 percent of net income)

Do not purchase high-cost insurance. Insurance should be used as supplementary provision for the family, not for protection or profit. An insurance plan is not designed for saving money or for retirement. Avoid whole life or universal life insurance. Stick to term insurance. Buy about 10 times of the wage earner’s income for the policy value. If you make $40,000, then buy term life insurance of $400,000. If you have small children, get a 20 to 25 year term policy. Just because one spouse does not work outside the home does not mean they do not need life insurance. They do need to get it.

Consider what costs the surviving spouse would face if the other spouse dies before the kids are out of the house. The surviving spouse would need to hire a babysitter, a cook, a housekeeper, etc. If there is not an insurance policy in place, where is the money going to come from to cover these costs? At the minimum, get a $400,000 policy on the spouse. You need insurance when you have a family that is depending on you. If you are single and don’t have children, you don’t need insurance. When you get married, get a term policy. Term policies are less expensive when you are younger and in good health.

f. Debts (5 percent of net income)

In today’s society, most people carry more than five percent of their income in debt. Unfortunately, easy access to credit cards, bank loans, and installment credit has made it possible for families to go deeply into debt. If you are facing this situation, then do the following:

  • First, destroy all credit cards;
  • Establish a payment schedule that includes all creditors.
  • Contact all creditors, honestly relate your problems, and arrange an equitable repayment plan.
  • Buy on a cash basis, and sacrifice your wants and desires until you are current.
  • When you do your repayment schedule, try to get out of debt within three to five years in order to avoid debt fatigue.

g. Entertainment/Recreation (6 percent of net income)

Do not use other people’s money (OPM) to pay for your entertainment. This means avoid using credit to cover your recreation and entertainment expenses. When you are in debt, you need to stop going out to eat, to party, to the movies, etc. Find free entertainment.  Take walks or go for a run. Rent movies instead of going out to the movies. Cut out the gym club memberships. Cut the cable and the internet.

Remember that as a Christian you want to be a good witness. If you are already in financial bondage, you are not being a good witness if you indulge at the expense of others. God knows we need rest and relaxation, and once our attitude is correct He will often provide it from unexpected sources. Every believer, whether in debt or not, should seek to reduce entertainment expenses. This usually can be done without sacrificing quality family time.

Recreation Hints

  • Plan vacations during “off seasons” if possible.
  • Consider a camping vacation to avoid motel and food expenses. (Christian friends can pool the expenses of camping items.)
  • Select vacation areas in your general locale.
  • Use some family games in place of movies (like some of those unused games received at Christmas).
  • To reduce expenses and increase fellowship, consider taking vacation trips with two or more families.
  • If flying, use the least expensive coach fare (i.e., late night or early morning usually saves 10 percent to 20 percent).
  • If you cannot pay cash for any of these activities, you cannot afford to indulge. Stay at home and save your money.

h. Clothing (5 percent of net income)

Put aside a little  from each paycheck into this category. You can do it if you trim the excesses in other areas. Be prudent in planning and buying and your family can be clothed neatly and without great expense. This requires effort on your part in terms of:

  • Saving enough money to buy without using credit.
  • Educating family members on care of clothing.
  • Applying discipline with children to enforce these habits.
  • Developing skills in making and mending clothing.
  • Consider buying items at the thrift store. Often you will find items that are brand new or in great shape.

Do not be a consumer of God’s resources just because the item is so last year. Instead, go through your closet and see what items still fit. If they don’t fit and you have not worn them in a year, take them to the thrift store. If you’re a shopaholic and have items with the price tags still on them, consider returning them to the store or selling them on eBay or Craigslist. This will bring you in some much needed money.

Buy your clothes when you are truly in need not when you desire or want a new item.

Budget Hints

  • Make as many of the clothes as time will allow. (Average savings is 50 percent to 60 percent.)
  • Make a written list of clothing needs and purchase during the “off” season when possible.
  • Select outfits that can be mixed and used in multiple combinations rather than as a single set.
  • Frequent the discount outlets that carry unmarked name-brand goods.
  • Shop at authentic factory outlet stores for close-out values of top quality.
  • Select clothing made of home washable fabrics.
  • Use coin-operated dry cleaning machines instead of commercial cleaners. Or buy the dryer sheets that clean dry clean clothes. They work great.
  • Practice early repair for damaged clothing.
  • Learn to utilize all clothing fully (especially children’s wear).

i. Medical/dental expenses (4 percent of net income)

You must anticipate these expenses in your budget and set aside funds regularly. If you fail to do so, it will wreck your plans and lead to indebtedness. Do not sacrifice family health due to lack of planning. Go to the doctor’s when you really need to go. If you eat right, exercise regularly, and have an annual physical, you can prevent major illnesses.

Teach your children to eat the right foods and to brush regularly and properly, so you can avoid many dental bills. Dentists have information you need on this subject. Also, see about getting dental, medical, and/or vision insurance through a group with whom you might be associated. Getting a group rate is cheaper than getting solo insurance for you and your family.

Ask your doctors and dentists in advance about costs. Also, educate yourself enough to discern when you are getting good value for your money. They should not take offense at your questions. If they do, that may be a hint to change services.

Shop around for prescription drugs, prices from one store to the next. Buy generic drugs. These are much less expensive than brand name drugs and are just as effective.

j. Home repair (variable expenses) (5 percent of net income)

The money you put in here will go towards not only repairing items around the house, but replacing appliances that cannot be fixed. Doing routine maintenance and repair, you will save a lot of money by doing it yourself.

Don’t rationalize not doing these things on the basis that your time is too valuable. That is utter nonsense. If every hour of the day is tied up in the pursuit of money, as previously defined, then you’re in bondage.

If your children see mom and dad working around the house, they will learn good habits. However, if you refuse to get involved, why should they? You need to teach them self-sufficiency.

Don’t use the excuse that you don’t know how to do something around the house. Take the time to learn the skill.  There are many good books that detail every area of home maintenance. The skills you learn may become necessities to you one day.

k. School/Childcare (6 percent of net income)

If need to have child care, you need to budget for it. If you are a young couple without children, but are planning on children down the road, start putting money away. It is better to become accustomed to this expense and have the money well before it is needed. Some couples feel that their child needs to attend private school. If so, start putting that money away as well before you have children.  You might need to reduce the amounts going into other categories to provide these funds.

l. Investments and retirement (5 percent of net income)

Don’t wait to have a surplus in your budget in order to invest for your retirement. This is especially true if your employer matches money into a retirement account such as a 401K. Invest up to the match and if you can take a little extra and put it into Roth IRA or a traditional IRA. As you become debt-free, you can invest more money to this category.

m. Unallocated Surplus Income

This category includes any money that you make from garage sales, sales on eBay, other online sales, and gifts. You can use this money to shore up any budget deficits. Sometimes the deficit is large enough that you need to get a part-time job to make-up that deficit.

n. The gotcha expenses (3-5 percent of net income)

This category is for expenses such as gifts and includes Christmas gifts. Birthdays, anniversaries, and Christmas come around at the same time every year. They should not come as a surprise. If you put money aside each month when the special event rolls around, you will have money to buy a gift. What a great feeling.

Variable Income Planning

If you have variable income you need a budget more so than families on fixed salaries. Don’t get trapped into debt because you need to borrow during lean months. Instead of spending what you make during high-income months, repay what you’ve previously borrowed. Proverbs 27:12 says, “A prudent man sees evil and hides himself, the naive proceed and pay the penalty.”

Though it is difficult living on a fluctuating income you can do it. You need to properly budget your variable income. Conservatively estimate what your annual income is likely to be. Then, divide that by 12. Develop your monthly budget based on that amount.  All of your income should go into a savings account and be withdrawn as your average monthly salary from that account each month.

This will allow surplus funds from higher income months to accumulate in the savings account to cover budgeted expenses during months of lower income. This is not hoarding; it is planning according to Proverbs 6:6-8.


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