Oprah's Debt Diet Step 5: Create a Monthly Spending Plan

You have a choice in how you spend your money, so having a spending plan in place is always proactive and empowering. A spending plan, like this pie chart, is the road map you need to get to your destination—a debt-free life.

Print the spending plan pie chart   

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A new spending plan should be developed for each month, detailing your estimated monthly expenditures. It should be completed 15 days before the month starts. By following this timeline, if you have a shortfall—more money going out than coming in—you will have time to cut expenses or generate additional income.

To free up as much money as possible for debt repayment, create a bare-minimum spending plan using Glinda Bridgforth's spending plan worksheet. This exercise will show you the minimum amount of money you need to get by during a given month.

Here's what to do using Glinda Bridgforth's spending plan worksheet:

1. Take a look at your calendar and note any special events that may cost money.
2. Complete your spending plan by making the best estimate of your upcoming bills and other needs for the month. Tweak the payments in all categories to determine the minimum amounts that can be spent without creating a sense of deprivation.
3. Don't forget to include an amount for your savings cushion so you have a resource available for emergencies.
4. Calculate your cash flow. What is the amount left over after you subtract the total expenses from the net income you will have for the month?
5. Include the "Murphy's law factor," which means anything that can go wrong will. Add an extra 10 percent to the spending plan once it's done. That figure is realistically what you're going to spend if something goes wrong (like car problems, plumbing, falling and getting hurt, etc.)
6. Apply remaining cash to your debts.

Print Glinda Bridgforth's worksheet!   

Requires the free Adobe Acrobat Reader to view.

After you fill out your worksheet, go on to Part 2 of the Monthly Spending Plan and create a spending calendar.

If you get paid more than once per month, the next step is to determine which bills to pay from which paycheck. Verify the due dates on your bills and plot them on a calendar. Then pay as many bills on time as possible from each paycheck. An expense like groceries should be allocated based on pay periods. For example, if your monthly plan is $400 and you're paid on the 1st and 15th, you can allocate $200 per check.

If you and your spouse agree to a cash allowance for personal expenses, use the same process to determine how much cash each person needs for lunches, gasoline, personal care items, etc.

Remember, fine-tuning your spending plan is a process. If the plan you put in place for one month doesn't work, it doesn't mean you should quit the Debt Diet. It means you should continue to tweak the plan and figure out how to make it work to accomplish your goals. Plus, just doing this exercise will inevitably make you more conscious of how you choose to spend your money and how motivated you are to pay down your debt.

Step 6: Take big steps to grow your income

Get all of Oprah's Debt Diet advice