Put a Pen to a Plan

For starters, let’s skip the “b-word” (aka budgeting) that is loaded with the same negative connotations as “dieting,” and move down the alphabet a bit.

“Planning” is essential to building a healthy financial foundation. And here’s an approach to planning that may even feel lighter than expected.

It’s called the “One-Number” Plan. That’s right, a financial plan that allows you to focus on one number, based on a relatively simple equation.

But don’t let the simplicity fool you. This is one powerful approach that many accountants (like me) keep in their back pocket, even after spending hours building detailed (line-by-line) plans.

The “One-Number” Plan Equation

Monthly Net Income (Take Home Pay)

- Future Expenses (Savings & Investments)

- Fixed Expenses (Cost of Living)

= Flexible Expenses (Monthly Spending Money)

÷ 4.3 (approx. # weeks per month)

= One-Number Plan (Weekly Spending Money)

The “One-Number” Plan in Five Steps

To support you through developing your “One-Number” Plan, I have created a five-step process as your guide:

Step 1: Start with Current Income

List and total all of your sources of income, such as employment, business income, investment income, rental income, child support, etc. Calculate Monthly Net Income by subtracting taxes from your gross income (aka Take Home Pay). If you are self-employed and your income varies, then use your best conservative estimate of monthly revenue less taxes.

Step 2: Plan for Future Expenses

List and total your monthly contributions to savings and investment accounts for Future Expenses, such as an emergency fund, large purchase items (a dream vacation, a down payment for a car or home, or a wedding), education savings plan, and retirement. If you are currently not saving, then start now - whatever you can do!

Step 3: List Current Fixed Expenses

List and total your Fixed Expenses for cost of living, including: food, shelter (rent or mortgage), utilities, medical, transportation, and other necessities.

Note: It is really important to identify essential living expenses from “nice-to-have’s.” This process is great to help you in identifying ways to reduce your monthly expenses. Also, don’t forget to include expenses that are paid quarterly or annually.

Step 4: Calculate Current Flexible Expenses

Subtract Future Expenses & Fixed Expenses from your Monthly Net Income to determine your Flexible Expenses.

Step 5: Arrive at your “One-Number” Plan

Divide your Flexible Expenses by 4.3 (approx. # of weeks per month) to determine your “One-Number” Plan. This is your weekly “one-number” to focus on for flexible expenditures.

The beauty of the “One-Number” Plan is you create a viable financial strategy with a built-in allocation system to meet your goals, while focusing on the most important variable: day-to-day spending. Each week honor yourself by spending within your “One-Number” Plan. Yet, allow for the natural ebb and flow of ‘life’ and adjust week to week, as needed.