- Calculate — Determine your discretionary income with a quick calculation: take your monthly income after taxes and subtract your fixed expenses like rent, insurance, and bills. The money left over is your discretionary income.
- Think Ahead — Look into the near future and pick out any expenses on the horizon like vacations, gifts, appliance replacements, etc.
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- Save — Set aside a certain amount of your discretionary income for savings and for the things you identified as future expenses. The beauty of a spending plan is that it is flexible — you can always increase the amount of personal savings you set aside if one of the projected expenses falls through (like if you needed a new microwave, but your sister gave you her old one).
- Make a List — After you've deducted the amount you plan to save from your discretionary income, make a list of your needs and wants and prioritize within the list.
- Keep Track — Keep track of your discretionary spending by checking off any needs or wants that have been fulfilled. This way, you can decide on the fly if you are able to go to a concert with friends. You might be able to reprioritize and save some of those wants and needs for next month. It's an easy way to get a clear picture of what you can and can't afford.