Financial Education E-Book.
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Your Spending and Saving Plan

It turns out that the majority of Americans live paycheck to paycheck - a full 78%, according to recent news report from a major TV station. For these Americans their finances are in a state of emergency, meaning they have no room for a job loss or prolonged periods of unemployment as the recent government shutdown demonstrated.
 

That being the case, if you’re reading this ebook, then you probably fall into that category, too. If nearly 80% of Americans live paycheck to paycheck, then chances are good that you’re among them because the majority of Americans live like that. That said, that doesn’t necessarily have to be your situation.  
 

Granted, you will need to make a spending and saving plan to get your financial life in order. The purpose of this ebook is to get your finances pointed in the right direction. You’ll take a look at how you spend, how you save, and learn how to make corrections in your finances so that eventually you don’t have to live paycheck to paycheck.
 

1. Record Your Expenses

It’s possible to develop and spending and savings plan by looking at your income first. However, there is a benefit of looking at your expenses before you look at your income. You get a good look at not only how you spend money on a day-to-day basis, but you’ll also see where you overspend begins to emerge as well. If you’re prone to overspending, then you’ll get a look at where you might need to give your finances a boost of some sort.
 

Keeping a chart of all of your income and expenses gives you an at-a-glance look at the status of your finances. Do be aware that your expenses may not, and should not, be just how much you pay in bills. The ideal spending and saving plan includes money that you earmark for savings and charitable contributions, too: Once you get to this point consistently, you’re on your way to leaving a state of financial emergency behind.
 

Here’s a partial list of expenses you should keep track of on your spending/ saving plan:
 

• Saving for a “minor” emergency, like a big car repair or a trip to the      emergency room. This should be at least $1,000 and it should be      replenished each time you have to use it.
• Saving toward a vacation, college, other (amount determined by the event or item you’re saving for)
• Contributions
• Rent, utilities, property taxes or insurance
• Transportation - public transit or vehicle expenses
• Health care insurance
• Other expenses

Be aware that if you’ve never kept track of your expenses before, you may not know what you don’t know. That is to say, you could owe money for some expense, but since you’ve never had to keep track of it, then you won’t know to budget for it. If that is the case, then look for budgeting templates online, or in financial books in the library. Both of these sources offer free resources for this purpose. They’ll not only help you keep your expenses in order, but they’ll serve as a reminder, helping you to remember those “forgotten” expenses.
 

2. Determine Your Net Income

People don’t always think about their net income. Sure, they have some idea of how much they make per hour. Let’s say they are making $20 per hour.
 

$20 per hour is their gross pay. Their net pay will be less than this. Employees know that they have money being taken out of their paychecks to go toward state and federal taxes, social security, 401(K) contributions, and the like.
 

However, once you start looking at your gross versus your net income, that’s when you (and most people) lose the ability to talk about how much you (and they) take home each month. 

The problem is compounded in the age of automatic deposits. Your money goes straight into your account and very often, you won’t even get a physical pay stub anymore. It’s online for you to check. While this may be more convenient for a lot of reasons, this essentially makes your money invisible to you.
 

To determine your net income, you can check your physical or online pay stub. That’s the amount that you can deposit after taxes and 401(K) contributions.

3. Putting it Together

Once you know how much you spend versus how much you make, it’s time to compare these two numbers. If there is a zero difference between your income and your expenses, then you are breaking even. If you have money left over after you’ve paid all of your bills, then you have a positive total. If you have a negative number, meaning your bills are bigger than your paycheck, then you’re in the negative.
 

People whose expenses exceed their income will very often live on credit cards and other credit. This is when the situation gets critical: Once your credit is maxed out, eventually your extra “income” will run out and you won’t be able to pay your bills. This situation requires your immediate attention.
 

4. What to do When You Can’t Pay Your Bills

When you have an income shortfall, you must prioritize where you spend your money. Basically, you need to think about the consequences that will come from not paying your bills when you’re trying to decide which to pay first.
 

For example, you’ll definitely need a way to get to work, which means you need to have money for public transit and/or car payments, gas, etc. Next, you’ll need a place to live and food to eat.
 

For a time, you’ll have to pay some payments late. That means you also need to figure out what the consequences of this will be. For example, will you be charged a fee for paying late? Will your service be shut off? When?
 

At this juncture, you may find it helpful to call your creditors and the utility companies to see if you can work something out. Doing this could buy you time and in some cases, you may even be in a position to get some of your interest payments reduced for a time.
 

Finally, you need to figure out how to fill the gap between your income and expenses. Are there expenses you can cut out, like cable TV, health club memberships, daily lunch out in restaurants, etc.? Getting a second job helps as does taking in renters. You might even have to move someplace cheaper than where you’re living now (if that’s an option).
 

5. Final Words

There is one more thing you should be aware of. If you are just breaking even, then you stand in a very precarious position, unless your budget includes regular payments to your various savings accounts. If your budget doesn’t, then any small emergency will put you into a budget shortfall. Even though you’re making enough money to cover expenses for the time being, you may want to consider either getting a second job or reducing your living expenses in some way just keep yourself in the financial clear.