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Before putting together your spending plan, look at the three cash flows in the case study, for examples of spending ranging from extravagant to prudent. Looking into the future, your forecasts of income and expenses will change at different stages of your life. There are many things you can do to economize when you have too much debt. And when finances are tight, consider putting everybody in the family on allowances, which they can spend however they want.

The pages that follow show three examples of cash flows for Jennifer. Let's use her as an example of how things can go wrong and what can be done to fix them.

Cash Flow #1: Out of Control

Jennifer is a single person making $30,000 per year. It isn't nearly enough. As you can see from her first cash flow, she's spending $626 more than she's making per month. She's got payments on her credit card as well as loans of $350 per month. She eats out a lot, and she buys nice clothes. She takes great vacations.

Cash Flow #2: Making Ends Meet

In the next example, Jennifer has consolidated her loans and credit cards at a lower interest rate, so her payment is lower. She's saving enough on interest to pay it off faster, too. She's cut her expenses. She stopped buying life insurance because she's single and doesn't have any dependents. She's eating out less. She's getting her hair cut at a beauty school instead of downtown. She's going to spend less on her vacations. She's saving a little bit each month, building up an emergency fund.

Cash Flow #3: Super Saver

In the next cash flow example, Jennifer has made more big changes in her life. She pays fewer taxes, because she's putting money into her company retirement plan and, therefore, does not pay tax on that money. She has a cheaper apartment, and she's paid her credit cards and loans off. She does her own oil changes and minor auto repairs, saving money on maintenance. She doesn't buy convenience food or eat out as often. Her reward? Being able to put $600 per month into savings. Jennifer is well on her way to realizing her financial dreams.

With these in mind, take some time to complete the "Cash Flow" worksheet.

Planning as a Family

Trying to come up with a spending plan is hard enough for an individual like Jennifer. But she's only deciding for herself. How do you make this work if you're part of a family?

You have to talk about it. It used to be that one person made all the money decisions in a family. The problem is that unilateral decisions don't work very well in the long run. So, even though it takes more time and effort, you need to sit down and discuss the issues.