The Spending Plan with the Built-In Reward

When it comes to personal finances, in the long run, the only way to increase your savings is if your income exceeds your expenses. Unfortunately, for many individuals, spending less than they earn is easier said than done. Regardless of how high or low your income, it may seem there's never enough to pay the bills and still provide all the things you want or need.

If you find yourself in this situation, there's only one way to get on top of it. You'll need to monitor where your money actually goes and plan ways to spend it more wisely. In other words - prepare a budget.

If the mere thought of a "budget" makes you feel deprived, call it a "personal spending plan" instead. Rather than focusing on what you should not spend, a personal spending plan can help you wisely redirect the money you do want to spend.

The reward comes in "paying yourself first" by labeling the top line "savings." Even if you start with zero dollars on this line, with patience and persistence, you will be able to find ways to reallocate your money over time and see your savings grow.

Here are four steps to help you get started:

1. Track your expenses for one month. Carry a small notebook and record your daily expenses for at least one month. Categorize them as fixed, variable, or discretionary. Fixed expenses include those for which the cost remains the same every month, such as your mortgage or rent, car payment, and insurance premiums. Variable expenses are those you pay on a regular basis, but for which amounts vary, such as food, utilities, childcare, travel expenses, and credit card debt. Discretionary expenses are those you could forgo if necessary, such as dining out, vacations, and entertainment. After tracking your expenses for one month, you'll begin to see exactly where your cash is going.
2. Calculate each expense as a percentage of your income. This exercise helps identify how each expense relates to your total income. For instance, if you lease a new sport utility vehicle for $320 per month and your monthly income is $3,200, you are spending 10% of your income on your vehicle. Aim to trim these expenses wherever possible. It may be possible to make large gains in savings by reducing many expenses by small percentages.
3. Prioritize your expense. Rank each expense as "important," "moderately important," or "unimportant." Carefully scrutinize each item, starting with the "unimportant" ones. Eliminate those items you can do without. You will probably have the most leeway with discretionary expenses. The savings you generate may be enough to begin a modest savings program. Then, look for opportunities to trim expenses that fall into the "moderately important" and "important" categories. For instance, you may be able to find a cheaper telephone calling plan if you shop around. Or, perhaps you could manage with a less expensive vehicle when your auto lease is up.
4. Pay yourself first. Here's the key to success-once you've ferreted out all the savings you can, write yourself a check for the amount you saved and "pay yourself first." How you manage your money depends on how much you have and your future goals. For example, if you plan on sending a child to college, you might develop an education funding plan. If you're planning for retirement, you could consider contributing on a regular basis to an Individual Retirement Account (IRA) or employer-sponsored 401(k) plan.

By treating your savings as a weekly or monthly expense, you'll be a lot more likely to set aside money for your future. As you see your funds accumulate, you will find that "putting yourself first" has become its own reward.

Article provided by Brad Seib, MetLife Financial Service Representative

Money Planner Volume 18 - Number 3

Circular 230 Notice: Any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication. You should seek advice based on your particular circumstances from and independent tax advisor.

Copyright 2007, Metropolitan Life Insurance Company, New York, New York. MONEY PLANNER explores ideas and summarizes information to help you meet the challenges of the future. For advice and guidance on specific subjects, consult your financial service representative and/or your legal and tax advisor. Like most annuity contracts and insurance policies, MetLife policies and contractscontain exclusions, limitations, reductions of benefits, and terms for keeping them in force. For complete costs and details, see your MetLife representative. Insurance and annuities offered by Metropolitan Life Insurance Company, New York, NY. Securities products offered by MetLfe affiliated broker/dealers including Metropolitan Life Insurance Company (memeber NASD) or MetLife Securities, Inc. (memeber NASD/SIPC). 200 Park Avenue, New York, NY 10166. This document provides a very general overview of some types of retirement plans available. This overview does not take into account specific distribution rules for each type of plan. For specific information, please consult yor tax advisor. Neither MetLife nor its agents render tax, legal, or accounting advice for which you should consult with your legal or tax advisor. Date of first use: 7/07.