Once you know how much you’re spending each month, and on what (see Managing Your Cash Flow — Step 1), the next step is to create a plan to make sure your money is doing what you want it to do. Some people might call this a budget, but if that sounds boring and/or difficult, call it your spending plan.

There are lots of ways to create a spending plan, but I like to do what I call the draw-down budget. Allocate your money to the most important things first, the ones you have to pay: rent/mortgage, utilities, phone bills, etc.; and those you want to commit money to: emergency savings, retirement savings, holiday savings, and so on.

You may want to set aside an amount of money for groceries and put it in the “have to pay” section; any money you spend beyond that is for treats or extras.

Once you’ve figured out how much money you HAVE to pay out each month, the rest goes to your variable spending. You’ll need to track it digitally or with pen/paper or use the cash method, but once your variable amount is used up, that’s it — no more spending for the rest of the month.

There are several advantages to the draw-down budget:

• It’s easy to use.
• All your bills get paid.
• You commit money to savings.
• You don’t spend more than you make.

I use a draw-down budget myself and have developed several categories of spending. If you use spreadsheets or would like to learn how, and how to use one to create a budget, contact me. I’ll be happy to share mine with you.

I would like to think that we did right by our children when it comes to knowing the value of money. At the very young adult stage, they are both going to university and still living at home with us. While I like to think it’s because they love us so much, the reality is that it’s very expensive to live in this city, and they’re saving money by staying here rent and grocery free.

(Both of them have told us — in a nice way — that they would move out in an instant if they had the money!)

As they were growing up, we tried not to buy them too much (after the very young child stage — when we got a bit carried away with Christmas presents). At a certain point, we gave them allowance and told them they would have to buy their own toys. Their purchases were always greased with the generous birthday money that arrived from relatives. Around the age of 14, we started giving them a clothing allowance and told them that they would have to buy their own clothes (have you ever tried to buy clothes for a teenager?) When high school ended, so did their allowance.

On this topic, I was heartened to read 21 Things You Should Make Your Kids Pay For.  I agree with most of it, but I chose to pay for my kids to do extracurricular activities and school travel. All of us in the family tend to be introverted and mostly would prefer to stay at home given the choice, and I wanted the kids to expand their horizons.

In terms of their university costs, we have a deal with the kids. Rather than them taking out student loans, we will lend them the money. We all sign the papers (even the kid who’s not taking out loan) so that everyone knows how much is owed. The amount is noted on our statement of net worth as an asset. So far this has resulted in minimal loans and a real commitment by them to make sure they’re getting value for their money.