2009's Must-Have #2: An Actual Plan

If you're like me, you have at least one friend who has a perfect budget. This person is probably about 25 years old, but they already have $17,000 in savings, are maxing out their 401(k), and can tell you where every dollar that left their wallet in the last six months were spent. If you're like me, you also know that you will never be that person. In fact, you're lucky if you have cash left over in the last couple days of the month before your next paycheck rolls in. Sound like you? Today, I'm going to talk about how you can actually get your act together and take advantage of technology to get your (financial) life under control.

Okay. Yesterday, I talked about setting yourself up with an emergency fund. Hopefully, you now have some cash earmarked for any bad news you may get down the road. Today, let's talk about what you should do with the rest of your money.

It's surprising to me how few of my friends actually have a plan for their money. I'm not talking about a budget. I'm talking about a plan. At the end of the day, if you really want to be successful managing your cash, you need at least one dream for yourself and your money and you need a budget. So pick a dream, right now. It doesn't matter if you choose "downpayment for a house" or "dream trip around the world," it just matters that you have at least one goal for your future. (Remember, you're just saving cash for this dream - cash that you can always use for a different dream if you change your mind in the future.)

Now that you've picked your dream, we can start talking about how to set up your cash flow to get you there. Richard Jenkins, editor-in-chief over at MSN Money, suggests using the "60% Budget." According to Mr. Jenkins, all you need to do is limit living expenses (rent, groceries, utilities, etc.) to 60% of your total income. The remaining 40% is split into four simple categories: 10% to long term savings (retirement), 10% to short term savings (emergency fund), 10% to lump sum purchases (a new sofa, a vacation), and the last 10% is for fun (beer!). For example, if you are making $50,000 a year, you have a net monthly income of around $2916.67. (This assumes you are losing 25% of your income to federal taxes - click here for a complete listing of tax brackets - and another 5% or so to state taxes. Damn you, Uncle Sam!)

For easy numbers, let's round that number down to $2900 in income every month. If you're limiting your living expenses to 60% of that number, you have $1740 to spend on your rent, your groceries, your gym membership, your cell phone, and whatever other expenses you designate as "fixed." You're also saving $290 for retirement, $290 for your emergency fund, $290 for the transmission on your car (which is guaranteed to go sooner or later), and you have $290 dollars left to spend on hot wings, new kicks, the iPhone, or Elton John's new album.

Sounds easy, right? It is pretty simple - and it's a great alternative to carrying around a tiny spiral bound notebook and recording every purchase to figure out where your cash is going. To make this even easier, arrange for the contribution to your retirement savings and the contribution to your emergency fund to be withdrawn from your paycheck before you ever see them. (Side note: if you don't know yet, you MUST find out if your employer offers an employee match, meaning your employer will put a dollar in for contributions to your retirement fund. If they do, try your best to contribute at least the amount that will get dollars matched by your work.)

Look, people. The bottom line is that you must have a plan for your money. Picking a goal will help you get organized and let you acknowledge your responsibilities (retirement and emergency fund), take care of the bills (that 60%), and leave yourself room for making big purchases. And of course, you get to blow some cash on fun. So pick your goals, arrange your finances, and make 2009 the year of the plan.