You know, one aspect that is important to me about this course is providing you with the tools that you're going to need to successfully become debt free. There couldn't be any tool that is more important than creating a good spending plan. Without that part of your life organized with a strong, good process, you're gonna have a tough time effectively getting out of debt. In fact, I want to suggest that it is the tool that will be the most helpful in the process. Now, you probably might be thinking, I hate the process of budgeting. Well, I want to let you in on a little secret.

I hate it too. In fact, I don't believe the budgets work. I think the concept is flawed. That is why I developed the boundary planning system and I'm going to teach you how that works. If you follow my process, you'll have your spending plan in place and make even more strides to being debt free. You know, years ago, I was speaking at a conference that was talking about financial issues talking about building a spending plan that we're going to talk about today, and I made the comment I just don't believe in budgets.

Now, after making that comment, I looked over to my left. And there was a lady sitting on the front row with just this startled look on her face. And it just caught my attention. So I had to stop. Everything's I had to know why the look. And so I walked over, because if you don't mind me asking, Why do you look so shocked?

And she said to me, she goes, after pausing for a minute, she said, You know, I just thought it was me. I just thought I was not good at budgeting. And it's so refreshing to hear someone say that, that they that they don't think budgeting works. And you know what's interesting, and what struck me about that is that as we're growing up, this is what we're taught. We're told that you budget your money that you watch your spending, and that you go through this process of budgeting, and we get out of college or get out of high school, we get our first job, and this is what we try to do. The problem is is that budgeting works great in a textbook, and it also to be fair budgeting work.

Probably for a very small percentage of the population and that that percentage, the characteristics of that percentage, let me say it that way, is that they're very, very disciplined almost military in the way they go about detail now for the rest of us, and that would include me just doesn't work. Because life happens, things change, and you're not really taught what to do when the budget doesn't work out. So what ends up happening is that we tried to do the budget. And this is why so many people don't manage their spending. They try to do the budget, if fails, they give up and then they practice a very dangerous process called fantasy budgeting, where you kind of just hope that by the end of the month, there's plenty of money left to cover all the expenses. Well, the good news is, I looked at this whole process and said, You know, there's got to be a better way to do it and develop what I call the boundary planning system, and what the boundary planning system does for you.

It gives you flexibility to when life doesn't work out. I don't know about you, but every thing in my life doesn't work out just perfectly as planned. So you got to be able to have that flexibility in your spending plan. Number two, it's a value based spending. And we're going to talk a lot about this because whether you practice values based spending or not, you're doing it, and we'll talk about that. It's based on anticipation.

You know, there's so many expenses that come up, we know they're out there, you know, like, the tires are come, the tires are getting worn down on the car, we know we're gonna have to replace them at some point. But do you really anticipate and plan for that expense, and we're going to talk about that, but it puts reality into your spending. A lot of times we kind of ignore the habits that we have with spending money. And we practice we practice things that really don't support our values. But this puts reality back into it, and helps you do a much better, more effective job with your spending. And let's talk about values based spending.

Like I said, if you're not if you're not practicing values based spending, you're still doing it. Because all you have to do is take your bank statements, your credit card statements, and add up where all the money's going. And there's going to be one category two categories that that command, the largest percentage of your spending. That is what you value. Money flows to what we value to how we spend money. So you're practicing it, right now the question is, is the priority of those values in the right order.

There's a hierarchy of a priority. Think about you know, take eating out. I love this example. Because eating out is something we all like to do, we all probably spend, I'll say, I spend too much money eating out, but I value that there's there's certain aspects of that that I value. Now having said that, I don't want to do a flowchart of the do a priority hierarchy of all my spinning and see eating out up near the top because there's things I value more than this. And if you practice this value based spending if you go through, and we'll I'll show you what a value based inventory looks like in a minute.

But if you put one of these together, and you really see this is what we value, you do this process with your spouse, it will change everything because you really want to make sure that that priority is there. And that you that you're spending money like you want to. I had a doctor and his wife come into my office once and they sit down and the doctor says to me, you know, Bob, we make pretty good money. And in fact, we get to the end of each month and we're struggling. We're struggling with what with what we're doing. We barely have enough money until the next paycheck comes in.

As a great here's what I want you to do for the next three months. I don't want you to budget I just want you to track your spending and see kind of where all the money's going. So, like clockwork, three months later, they come into my office and they sit down with it's just this absolutely disgusting. look on their face. And it struck me and I thought, wow, they must have really discovered some things they didn't like. So tell me how the process goes, go.

And he looks at me with this look on his face just almost of embarrassment says, Bob. We spend $3,000 a month eating out. We spent $3,000 a month eating out. And I looked at him I go, that's great. But obviously you value eating out. And he looked at me like I was halfway crazy.

And I said, Listen, it's not that eating out. It's bad. It's something you obviously value. What you're upset about is that you're prioritizing, eating out over some other things. So what we need to do to fix this is get your priorities right as a family where the money flows, you can still eat out you can still enjoy the benefits of doing that. It's probably going to you probably will feel better if it's falling a little bit below, other priorities and others values.

This is no, this is a very small inventory, but it's just, it's just designed to give you an idea. And I built this example, you know, if you're 100% of your income, this is where the money is flowing, you know, 20% to home, eating out is 10% savings is 5%, you can kind of see where where it's going. Now, let's say that this is a snapshot of what you truly value where the money is flowing. And you look at that and go, man, I just don't know that I really like the fact that getting out of debt is so low. So in the fact that entertainment and eating out are so high. So what you do is you switch the percentage, you have you build up the priority of getting out of debt, over eating out and you look at this and you feel good about it because you say this is what we really prioritize.

We want to get out of debt, we can eat out less, and you get these in the right order. This truly supports your your priorities and your value. value based spending is is a very, very powerful way to go about organizing your spending. Now let's talk about the boundary accounts. If you go back to this chart, these are all these are all boundary accounts. If you look at traditional textbook budgeting, what the textbook does is they they take these big, broad accounts, and big broad categories, like they'll say, kids, and everything that you spend on your kids will go into that category.

There's a problem with that. And it's the fact that you don't have detail. When we're setting up boundary accounts. I want an account a category you can interchange those, I want an account for every expense over $5 I wanted accounted for every expense over $5. And there's a reason why that we got to get into that much detail is simply this. And I'll give you an example.

If God forbid you got laid off and you know now, you know, boy, we've got to really tighten the purse strings, we got to really cut back on the spending. If you've done my method of boundary planning, then you know in great detail where you can cut back, you know where you can shift some of the money around. Because you know that take kids, for instance, that under the under the kids category, there's all these broken out different accounts. But if you look at a traditional budgeting and you see kids and you see, okay, we spent $1,000 or averaging, you know, $500 a month, whatever the amount is, then you have to dig through all that data to find out exactly where the money is going. Probably not something that you want to do in a stressful time. So this really does help account for the detail through the boundary planning process.

Now. It also does one other thing for you. It curbs excessive wasteful spending. Have you ever gone through and dentists spending audit on your accounts, this is where you go through and this would be kind of About boundary planning. But this is where you go through, and you see exactly where all the money is going. And what you'll find is that you're spending money on things that you didn't know you're spending money on that subscription that you thought you cancelled.

That fee that you thought you got rid of the cell phone bill, I can't tell you how many times I've audited my cell phone bill and found where they didn't remove expenses, or there were crazy expenses on there. Now, these aren't big account big amounts. But if you have a lot of big amounts, they add up. And so this helps you with the detail make sure that making sure that money is going where it's supposed to. Now if you can see the detail on this, my boundary account is really broken down into a lot of different smaller accounts. So you take children for instance, everything from activities to fees to childcare, you name it, this kind of detail.

With this kind of detail. You can effectively manage your spending, plus it goes back to help you with that value based spending. Let's look at some more. And you can see other categories. And this is exactly how I've developed the system to where everything that you could possibly spend money on. I'm sure there's a couple things missing out of this list.

But this probably gets most of what we spend money on and gets a real organized for you. Now let's talk about the process, the boundary system process. First of all, you get to choose a system. Now, this can end up being a roadblock straight off the bat, because the fact that there's all kinds of systems there's mint.com, there's Quicken. There's all types of software systems out there designed to effectively help you manage your manager spinning and you can set the boundary system process up on any software program or online program. The problem that I have with that is that you know, it's running software system Some can sometimes you can run into a situation where you don't understand how to do something that everybody is, is computer literate with the systems.

And that can become a roadblock if the system is difficult for you to navigate. And we don't want to put any roadblocks in the way of your success with effective spending. So what I use and what I've developed is a simple Excel spreadsheet. Now, I use this spreadsheet for a couple of reasons. The first one is that I'm really into the detail because I have to enter in all the information we can week out. With software systems, you're downloading reports, you're downloading information into the software from, you know, American Express from bank accounts, wherever it's coming from.

And it's just easy to hit a button, print out a report and go, Oh, that looks good. It's kind of like going through the motions. You feel good about it, but you're not really getting into the detail. I think to be effective, you've got to be able to get into the detail. So I've developed this as this spread. And let me tell you, if you go and send me an email Bob at prudent money.com and you can get more information if you at prudent money calm.

But if you send me an email say Hey Bob send me the system, I will send it to you free of charge. And it's got an explanation and it's got a breakdown of everything you need to know to set your system up. So first thing you want to do is get your system The second thing is establish limits. Now there are three different types of expenses. There's a consistent expenses such as you know, mortgage rent, anything that is month in month out car payments, same same payment. There's variable expenses, this is where you have, say gasoline, you know, gasoline was 251 month 200 the next month, and it kind of fluctuates a little bit, but it's a consistent bill.

It's just variable in the amount that you spend. Then there is sporadic. This is the the bill That comes up once or twice a year. I always that the time of year that we're we're shooting this that it's about to be school time. And I'm always surprised how much we spend school. But that is a sporadic, the deal that comes around once a once a year.

So what you're doing is you're going to look out 12 months to set this up 12 months, and you're going to look for these three times, types of expenses. Obviously, the consistent ones are easy. And then you want to plan for this sporadic ones, and you want to get an average. What do you think is an average spending for your variable? You know, one of the things you gotta look out for is electricity. Electricity is a lot more in the summer.

So you want to have a higher limit on your boundary account for electricity for for the middle of the year, excuse me for a summer. Then there's the weekly review. Now this is what is critical. And I also want to say this just in general about this whole process is I wish I could sit up here and tell you that this is easy. It's not going to be difficult, it's not going to be a problem to establish. It's a little bit cumbersome at the front end.

Because you're establishing data you got to have you got to take it and realize it's a process, it's going to take a while to get the limits exactly where you need them to. But here's the good news. Once you've gone through this process, once you've taken the time to get to the detail, got the detail in your software system on your spreadsheet, whatever you're using, would have taken you an hour, maybe at first, a week is now going to take you about 20 minutes, it does get a lot easier. That's the good news about it. So during this weekly review, and once again, don't create a roadblock by picking a time that you don't can't commit to pick a time that you know, weekend week out, you can sit down, make an appointment with yourself, say it's on a Friday, you know, early Friday evening or Saturday morning, whatever it is, and you're going to sit down and basically what you're going to do is you're going to take all your spending for the prior Seven days, and you're going to assign it to an account.

So if you spent $200, that week eating out, then you're going to put $200 in the account and deducted from the account. And then you're going to see the total this leftover. What this does week in week out is keep you tracking on the boundary accounts. So for instance, if you have a tendency to spend too much money eating out, and you're in the third week, and you're already almost it to the limit of your battery account, you have one of two choices, you need to move some money from one of the other boundary accounts over to increase the boundary account or you need to stop eating out is 111 thing another. Once again, this brings reality into your situation into the way that you spend money. So you'd go through this process weekend, week out now, a very important part of this process is the monthly meeting.

Now, if you're married this month Sin, horrifying chills through through your body because you're saying, You want me to sit down with my spouse on a monthly basis and talk about money. I know, there's a lot of toxic baggage that comes in marriage sometimes with money and money is a is a big producer of arguments or can be. In fact, I did a teaching course and you can catch it on the pretty prudent money channel about effective communication with your spouse when it comes to money match, check that out. But let's let's just assume we got past that. Sit down with your spouse, go over the sheet of what was spent, and hopefully at the bottom, you underspent and there's a there's a plus sign. And at the bottom of that spreadsheet, it says maybe you are plus 500, you had X amount of coming in X amount going on you have $500 left over now.

You can look at that with your spouse. And you can decide okay, where do we put that 500 maybe it's you want Spend it, maybe it's you want to pay down on debt, maybe you want to put it in the savings per month that you go over on your spending. But you have that choice to really be able to do that. Now, if you have a negative number, you got to figure out a way to compensate for that, because you don't want to carry on. If you had a negative number, you probably put some money on the credit card, and you need to figure out how to compensate that credit card to pay that back. And we'll talk about that.

But the next thing that you want to do at that monthly meeting is you want to talk about the next three, maybe four months and talk about some potential expenses that are coming up that you haven't planned for. I go back to the car, the tires in the car, I mean, that's something that one of those things that comes up, it's an expensive item, you know, maybe 678 hundred dollars, whatever it might cost. And so you got to plan for that. You got to plan for the unexpected. For instance, you know that water heaters are getting old and that's an imbalance Excuse me make a list of all these things, I think it's good to have a list that where you can review it. But if you know the water heaters are going getting old and you know it's going to cost you $4,000.

Maybe you start planning for that, because here's the bottom line with this. If if you're we're obviously we're using this system to get get spending down and become more effective as spending, you're also using it to get out of debt. And we don't want to increase the debt, we want to decrease the debt. So this is to me, the only way to really do that is get into this kind of detail and anticipate what could be coming down the pipe. Now, let's take a look at practical application and creating boundary planning accounts. This is what the spreadsheet looks like.

Obviously, this is just three boundary accounts. There's way more than the spreadsheet, but you have groceries you have $500 obviously at the beginning of the month, so you haven't spent anything and you see the ending amount $500 these these are the limits The boundary accounts car payment that's consistent, you know, once that pays, you're gonna put $400 in there and it's going to zero out at the end lectricity that's one of those variable costs, groceries, a variable cost. And that these are where you put averages in. And hopefully you come up on the on the plus side of the equation. Now, you sit down, you went grocery shopping, and cup over a couple of weeks you spent $400, you put the $400 in, you had 500. To start, now you have your up $100.

Let's say that you end them in the month there, you have a surplus and that particular boundary account, and that surplus can go anywhere you need it to. Now let's, let's look at another another example. Let's say that you have a medical account, you've designated $50 limit for that for your boundary account. What you spent 150 that gave you a negative 100 Now fortunately, you have a positive 100 up here. So those can balance themselves out and they give you zero at the very bottom of the spreadsheet. Or you can go through the process of increasing taking this hundred from the 500 and make it down to 400.

So this is a zero and move that hundred 150, spin 150 and zero however you want to do it, but it does end up balancing it balancing it out. Now, this has got to be prevented. If you had a limit of 500 is spent 600. You have a negative 100. it defeats the purpose. If you go through the process and you don't do something about the overage once again, if you have an overage chances are it went on the credit card and you got to figure out how to pay it back. So sometimes you have to get creative and find a way to create additional money from the unexpected in And then just a couple of ways that you might be able to do it cut back on monthly retirement savings.

Now I know that that sounds drastic. And we're always told, make sure that you're saving money and investing money for your retirement at the same in the same breath, you want to make sure that you've got this under control. And truth be told, most people don't have a spending plan. Most people have no idea what they're spending consistently. And most people are disorganized. And this is why there's so many financial problems until you get this down and get this squared away.

So if you have to cut back a monthly retirement savings and cut back, you could you could fund it with a future miscellaneous account. So let's say that you're down 100 It's July. And then August, excuse me, and that went up that went in on a credit card. So you got to pay that credit card off the next month. Go to your missile, go to maybe your miscellaneous and we'll talk about this here in a minute, your miscellaneous column and deduct the hundred dollars or next month. Because you're going to take that money and put it on the credit card.

So credit card, plan to pay it back. Once again, if you're using this as a means to get out of debt, you don't want to increase the debt, you want to decrease the debt and get it going the other way. A couple of other things, talked about the miscellaneous account. This is, this is to me an important account because you want to create pockets that can cover overspending. So if you have the luxury of finding this in your spending plan, maybe you can put 100 $200 in miscellaneous, it's a good way to create a little space for you in the event that you go over. That's a good way another another thing that you can do, if you had the luxury of doing this is create if you're married, create an allowance account for the two of you.

Now this is money that you take out, you take out a cash and it's not you don't track it in the each spouse can spend it on whatever they want to this gives it a little bit of Freedom into the spending account, and you're not and you can't be held accountable for it. So it's a great way to do Plus, if you wait a month, and you fund it at the end of the month with knowing that you have it, that can also be a surplus account. I like to build in surplus accounts in the event that I have an overage so I can cover it. Here's the bottom line with with the spinning plan. Like I said, most people don't have it. It's at the foundation of good financial practice.

It's at the foundation of getting out of debt. It keeps you organized and keeps you effective spending money.