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Building Your Spending Plan


That is the question. And your Economic Freedom Spending Plan will help answer it, with a spending plan worksheet.


Podcast Transcript Episode 6

Doug Fabian: Not happy with your cash flow? Not saving enough money? The problem is on the spending side. Let’s fix it today.

Announcer: The Science of Economic Freedom is intended as an investor education resource. Views and opinions expressed on this program should not be construed as a recommendation to buy, sell, or hold any specific security. Consult your investment advisor and read any investment prospectus carefully before making any changes to your investment portfolio.

This program is sponsored by Mercer Advisors. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.



Doug Fabian: Welcome to The Science of Economic Freedom. I’m your host, Doug Fabian. This podcast is all about helping you achieve your financial dreams. We call that economic freedom. This program is about your journey to achieve economic freedom for yourself and your loved ones.

Today, we want to help you identify your next step on that journey.


What is a spending plan

Episode six: Building Your Spending Plan. Let’s set some context. Context means understanding where we are, where we are going, and how we will get there. Your spending plan builds your balance sheet. We know that our balance sheet will provide for our income and financial freedom at a future date. Your career, your job, your business activities, are your human capital. Your spending plan converts your human capital into investment capital. Your investment capital builds your balance sheet through savings, debt reduction, and investing. That is our context for this podcast.

The discussion of spending is a difficult one for many people. Money is coming in, money is going out, there can be a negative connotation to this discussion of spending depending upon you, where you are today, and your history with money. No matter where you have been in the past, today is a new day.

Your spending plan is what you want to do with your money. For those of us who are committed to economic freedom, we need proper information to make good choices with our cash flow. That is the purpose of a spending plan. It is a tool to give you information and allow for good decision making.


Great things about financial planning

One of the great things about financial planning is that you can always start again and start over. Some people may have regrets about past money decisions. Forget about them, you are starting fresh today. Going back and thinking about the past will not help you achieve economic freedom. Now, you can certainly vow to never make the same mistake again, but don’t dwell on the past. Let’s look to the future.

Here is a quote from Kelly Palmer, one of our 30-year veteran certified financial planners at Mercer Advisors: “Cash flow management is the single most important factor to an individual’s or family’s financial success.” Here’s another quote from Laura Combs, Mercer Advisors certified financial planner and champion of the spending plan process: “When cash flow is working, everything works.”


How to manage cash flow

Let’s manage our cash flow. To do this, we need to first create a plan—a spending plan. That makes this a habit. As human beings, we are creatures of habits, good habits and bad habits. To create a new habit, we must first answer the question, “Why should we change?”


Goal setting

Let’s jump back to episode four, Goal Setting. Pull your goals out, right now. Read them aloud. How do they sound? They should sound great! This is exciting and positive! How would you feel if your goals were attained? I would hope you would feel awesome. How do you feel when you’re economically free? Proud? Empowered? Energized? Stress-free?

Now, think about this question: Are you going to allow anything to stand in your way of achieving this goal? No way! Let’s form new habits, good habits that create a lifestyle of financial success. We have our goals now. You have your balance sheet. You know exactly where you stand today.


You will be economically free

Now we need a spending plan to start to improve our net worth, improve our cash flow. Here is how we go about doing this. Now, first, because this spending plan is so important, we must declare that we will be economically free. Now, this may sound funny, or even awkward to some listeners, but we need to positively declare our intent, so bear with me.

Repeat after me. We will be economically free. We will not fail. We will invest in our future without hesitation. We will create seed capital to invest. We will spend less than we make. We will be economically free. Now that is great. We just declared our intentions.


Sections of a spending plan

Next, we will create our spending plan and proactively declare how we will spend our money. Most people do this in reverse; they allow their bills to control their spending. Not us. We decide how our money will be spent. Look at where you want to save and spend your money using your goals as your guide. There are just two rules: spend less than you make, and make more than you spend. Now, you will need to look back at where you’ve been spending money. This gives us fundamental information.



Next, we’ll do some diagnostics. This will be where we start to make some new choices. This is where we want to save and spend our money. This is where your goals come back into play. Saving more for retirement. Saving for an emergency fund. Maybe a down payment on a home. Paying down your debt. In the diagnostic phase, we make new choices. Here is another way to visualize and organize your thoughts on this. Use the bucket system. This means placing some priorities and parameters around short- and long-term goals.


Emergency fund

You should have an emergency fund. This would be bucket one. This could be two to six months of living expenses, or a specific dollar amount. This is your “sleep well at night” fund. It is parked in a bank savings account or a money market fund. It could be ten, twenty, thirty thousand dollars. Whatever amount you feel comfortable with.


Short term goal

Your next bucket would be for a short-term goal, maybe a one to five-year time horizon. This could be a down payment on a home, a college account for a child, a nest egg to start a business. The amount of this account is up to you. Declaring this bucket for a specific purpose and dollar amount will help you prioritize your savings. The investment strategy of this goal will most likely be lower risk.


Economic freedom

Your next bucket is your economic freedom bucket. This is where your retirement accounts and your excess savings are accumulated to invest. You could separate retirement accounts from taxable dollars and make these two buckets, since the timeline of the economic freedom bucket is usually longer than bucket number two, a more growth-oriented investment strategy may be appropriate. With the bucket strategy, you are able to sort out short-term and long-term goals for saving purposes as you are building your spending plan.

Finally, we project forward our new spending plans. Projections are just a forecast. They are the desired outcome. We may not hit them every month, but we will move much closer since we now have a spending plan. The process again is this: Look back to gain understanding. Diagnosis to align with our goals. Create a new spending plan going forward, and then, lastly, monitor that plan for accuracy and success.



Spending plan worksheet

We have created another tool for you at In the resources section, download the special report titled “My Spending Plan.” In it, there are instructions and worksheets for building your spending plan. Print out the worksheets, and let’s get started.

There are three worksheets to assist you in this process:

  1. The look-back worksheet. This allows you to go back and document how you have spent your money and income over the past three to six months.
  2. The annual expenses worksheet. This is to help you think through expenses that are not occurring monthly, or expenses that you want to plan for in the future. A vacation or gifting would be examples of annual expenses that don’t show up in your monthly spending.
  3. Projection worksheets. These are designed to help you project your future spending over the next six months.

Annual expenses worksheet

Managing your cash flow is like managing a business. Cash flow is king in business. To keep the doors open you must pay your taxes, any debts that you owe, and have cash for your operations. Once your cash passes through these three filters, your excess cash flow is your profit.

In your personal life, there are three filters as well.

  • Taxes
  • Debts
  • Lifestyle

Your excess cash flow is your savings. Let’s put these metrics to work. Our forms are designed and organized with these three categories in mind. Your spending plan begins with your expected income and known expenses. Use the forms to fill in your expected income over the next six months.



Now, let’s move to our taxes. Depending upon whether you are a self-employed person or a W-2 employee, your first obligation is your taxes. For those working for a company, your taxes are taken out of your paycheck through payroll deduction. For those of you who are self-employed, you may be filing quarterly tax estimates. These are critical dollars you set aside and pay when they are due.

Now on a side note, if you are managing your cash flow correctly, you should not be receiving a tax refund every year. Paying a small amount at tax time means you’re managing your taxes correctly. Receiving a large refund of over $500 means you have mismanaged your cash flow and taxes. More on taxes in a future episode.



After taxes, your next set of obligations are your debts: mortgage or rent, car payments, credit cards. These are obligations that must be paid to keep your financial life in good standing and a roof over your head. You may have in your goals to pay down your debt, especially your bad debt, so you will need to determine the amount of your loan payments to accomplish this goal.



After your debts, your next obligation is your lifestyle. Food, clothing, utilities, insurance, transportation, travel, entertainment, basically everything else falls into the lifestyle category. Once you have accounted for your lifestyle, your excess cash flow is your savings or profits.

Do you know what your spending habits are? If we were just starting a business and had no real data on expenses, we would work up a budget. This would be our best guess on what our expenses will be over the next 6 to 12 months. Since you have been running your business, you can look back and see what you’ve been spending your money on.

It is a great exercise to go back and look at the last six months and see what has happened with your cash flow. How much did you save in your 401k? How much did you place in your credit cards? What was your unexpected expenses? How much did you pay in taxes? What was your income? These are questions only you can answer by looking back at the last six months.

We’ve included on our worksheets the appropriate categories to use so you can look back at your spending and see where your money went. You will need your checking account statements and your credit cards. This exercise is designed to help you see where you’ve been spending your money, to familiarize you with those unforeseen expenses, so you can develop a better spending plan going forward. Take the time to do this and look back at the last six months. Knowledge is power, and knowing where you stand will take away stress and anxiety around money.


What it should look like

Creating your future spending plan should look like this. Go over your look back worksheets over the last six months. Truly understand what has been happening in the recent past about your cash flow. Next, build a cash flow plan for the next six months. Commit to a new habit and lifestyle of making your future economic freedom your top priority in your spending plan. Each month, sit down and compare your spending with your plan. If you’re married, do this with your spouse or partner. This is the monitoring process of your spending plan.


Finding more investable cash

Let’s talk about finding more investable cash. Your new cash flow managed lifestyle puts you in control to make better financial decisions. When it comes to a new purchase option, you will be more inclined to think about your economic freedom than keeping up with the Joneses. Finding more investable cash will come out of better decision making.


Cash flow retirement accounts

Let’s talk about your free cash flow in your retirement accounts. In your spending plan, you have contributions to your retirement accounts. In most cases, these are pre-tax contributions. The nature of a pre-tax contribution is a powerful savings advantage. Saving pre-tax lowers your top line income, and your contributions are not being taxed. The change to your cash flow is not dollar-for-dollar. For example, if you were to increase your 401k contribution by $500 a month, it may only cost $350 a month to save $500 a month. That is certainly a benefit.

A big portion of your future income streams in retirement is going to come from your retirement nest egg. Finding more money to invest in retirement accounts today is about better cash flow decisions. For those of you who are self-employed, you even have more options for retirement savings with higher contribution limits. SEP IRAs, for example, allow contributions of up to 25% of your income, and cap out at $54,000.



Knowing what you’re spending money on today is empowering. Having a spending plan will accelerate your savings, it will prioritize spending to your goals. It will make your life less stressful, and you will begin to feel economically free before you even get there. That will place you in the mindset to do better, to make more money, to get a raise, to go after a new job, to start a business. Success breeds success.


Action steps

Here are the action steps from today’s podcast.

  • Download the report “My Spending Plan” from
  • Print the instructions and the worksheets
  • Start with a look back on the last six months of spending
  • Put together your spending plan for the next six months
  • Meet monthly to review your actual spending versus your plan.

That’s it. This is Doug Fabian, thanks for listening.

Announcer: The Science of Economic Freedom is intended as an investor education resource. Views and opinions expressed on this program should not be construed as a recommendation to buy, sell, or hold any specific security. Consult your investment advisor and read any investment prospectus carefully before making any changes to your investment portfolio.

This program is sponsored by Mercer Advisors. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.

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