If you’re struggling to stick to a budget, the Dave Ramsey allocated spending plan can help.
An allocated spending plan — which is outlined in his best-selling book The Total Money Makeover and his paid course Financial Peace University — is a type of budget that allocates expenses into groups based on pay periods.
I’d describe this method as “old school.” It predates the smartphone — and therefore even Ramsey’s own budgeting app EveryDollar. For most people, it’s still a manual pen-and-paper process that will take some effort.
Despite that, an allocated spending plan can be an effective way to save money and take control of your finances.
Keep reading to find out whether an allocated spending plan is right for you.
What’s unique about Dave Ramsey’s allocated spending plan is that it allocates expenses based upon when you’re paid.
This means you will no longer budget on a month-by-month basis (unless you get paid monthly, of course).
Let’s say you’re paid bi-weekly on Fridays. In that case, your budgeting cycles would be something like:
- Pay Period #1: Friday, January 6th through Thursday, January 19th.
- Pay Period #2: Friday, January 20th through Thursday, February 2nd.
If you get paid bi-weekly on Fridays, and your spouse is paid on specific days (the 1st and 15th of the month, for example), you would then have four or even five pay periods within each month.
Once you have your pay periods figured out, your next goal is to budget your expenses for the month within each pay period (as explained below).
Allocated Spending Plan On an Irregular Income
For irregular income planning, Ramsey suggests basing your income on your lowest-paid month from the previous year.
If you’re self-employed, or even have side hustle income, I’d suggest setting specific dates each month to withdraw funds from your freelancing/side hustle platform, or to pay yourself from your business bank account.
As a personal example, I have calendar alerts set up for the 5th and 20th of each month. These are the two days when I pay myself from my company (and also set aside money for taxes).
Four Steps to Implement the Dave Ramsey Allocated Spending Plan
To follow an allocated spending plan, there are four steps you’ll need to follow:
- Step #1: Insert your pay periods and expenses into the allocated spending plan.
- Step #2: Determine your expenses.
- Step #3: Track your expenses.
- Step #4: Rebalance to zero.
You’ll be entering these numbers into two different forms.
Step #1: Insert Your Pay Periods and Expenses
There are two forms you’ll need in order to get started with an allocated spending plan.
Form #1: The monthly cash flow plan.
This is the form you’ll use to insert the data into your allocated spending plan. If you’re following along step-by-step, go ahead and complete that form now.
Pro Tip: A more modern (and quicker) way to get the data would be to use one of the many free budgeting trackers. My favorite is Rocket Money, which automatically syncs data from your financial accounts and has the cleanest dashboard of all the budgeting apps I’ve tested. Read my Rocket Money review to learn more.
Form #2: The allocated spending plan.
Form #1 is designed to help you build out your monthly cash flow plan. Form #2 is where you use the data you collect with that monthly cash plan to create your allocated spending plan.
Insert Pay Periods and Expenses
As mentioned in the outset, you’re no longer adhering to a monthly budget. Instead, you’re budgeting based on pay periods. So Step #1 involves inserting the dates you’re paid (as well as how much you’re paid) into the allocated spending plan worksheet.
Here’s what that worksheet looks like:
For many people, pay periods are not consistent. Within a couple, one partner might get paid on the 1st and 15th of the month while the other gets paid every other Friday. Freelancers may get paid daily, weekly or only upon the completion of a project.
So in many cases, a couple may find that they have four or more pay periods per month. A good rule of thumb for those in this situation is to have each pay period last at least a week.
Ramsey also suggests that your income should equal your take-home pay minus your tithe (i.e., your donation to your church). From my perspective, this is optional — as well as something I’d avoid doing if I were in high-interest debt.
But, to each their own…
Step #2: Determine Your Expenses
The next step is to insert the expense data you collected in the monthly cash flow worksheet (Form #1, or via Rocket Money) into the allocated spending plan worksheet (Form #2).
The goal is to budget to zero in each pay category.
Budgeting to Zero: The term “budgeting to zero,” which is also known as zero-based budgeting, sounds confusing. Understand that it does not mean you’re trying to spend every dollar you earn. Instead, you’re giving every dollar a job — including dollars not allocated to expenses.
For example, if your take-home pay is $1,000 during a certain pay period, and your expenses equal $800, you’re still assigning that remaining $200 for that pay period — most likely towards a financial goal like your debt snowball.
It helps to break some expenses, like food, down into a daily estimate. Then you can multiply that by the number of days in a given pay period.
For example, if your monthly food budget is $600 and there are 30 days in the month, that’s $20 per day. If there are 14 days in your pay period, you’d have $280 to budget for food.
You’re done when you’ve budgeted every expected expense over the next four pay periods.
Related: How to eat healthy on a budget — including a sample shopping list and meal plan.
Step #3: Track Your Expenses
Now it’s time to track what’s left in each of your budgeting categories.
While you’ll want to keep track of how much you spend throughout each pay period, to simplify things, you’ll only want to record those figures inside of your allocated spending plan at the end of each period.
For our example above, you’d fill out your spreadsheet on the 10th, 24th, and 31st of the month.
If you’re deciding to keep things old school, this involves tallying up your expenses over the pay period by looking at past receipts or bank account statements.
The more modern way would be to import all of your transactions into a single dashboard, with the use of a budgeting app.
Step #4: Rebalance to Zero
At the end of the pay period, after recording every dollar you spent, you will (hopefully) have something left over in the “Remaining” column.
Your first thought might be to roll this over to the next pay period. But that’s not what Ramsey suggests.
Instead, he says that you should rebalance your budget so that every dollar has a job.
A good idea with what’s left over is to allocate it towards your highest-priority financial goal. For example, you may want to increase your principal payments on your debt, increase your savings or build your emergency fund.
The idea is that you’re budgeting every dollar, so at the end of the pay period, there’s zero remaining.
Alternative Budgeting Methods
In addition to the allocated spending plan described in this article, I’ve written about a handful of other budgeting methods: the reverse budgeting method, the 50/30/20 budgeting method and the cash envelope system.
Let’s take a look at how those three budgeting methods work.
The Reverse Budgeting Method
The reverse budgeting method is the strategy of “paying yourself first” so that you can fund the most important goals you have in your life. After that, anything that’s left over — after you’ve taken care of your necessities — can be used for whatever you please.
This method is ideal for someone who doesn’t necessarily want to watch every penny, but who still wants to make sure the big goals (like investing in a retirement fund or paying down student loans) get taken care of.
The 50/30/20 Budgeting Method
The 50/30/20 budgeting method is a popular budgeting rule of thumb. The method recommends using 50% of the money you bring in for necessary items, such as housing and transportation, and then assigning 20% of your income to gaining financial traction (like saving and investing).
Lastly, it allows you to use 30% of your income to do whatever you want. For a complete overview of this method click here.
The Cash Envelope System
Best for those who are really struggling to stay within their budget, the cash envelope system (as popularized by Ramsey) involves physically placing cash into individual containers that align with your budget categories.
You can read more about how the system works in this guide.
Allocated Spending Plan Tips
Here are some tips to keep in mind when you’re implementing an allocated spending plan:
- You can change your due dates. For most of your monthly bills (especially your credit cards), you can change the days each payment is due. This is helpful if the majority of your bills are due around the same time each month, or are due when you’re unlikely to be paid.
- Have a buffer in your checking account. Even though you’re tracking every dollar with this method, and rebalancing your budget to zero, I’d still have a little buffer (at least $100) in your checking account. This way, you’re less likely to get dinged with an overdraft fee.
- Use a budget tracker. Make things easy and keep track of all your financial accounts in one place with one of the many free budget trackers.
Allocated Spending Plan FAQ
Ramsey has released a popular budgeting app called EveryDollar that is specifically designed to work with an allocated spending plan. However, my favorite free budgeting app is Rocket Money, as I explain in this Rocket Money review.
Rounding up your expenses — say to the nearest $10 increment — can help you stay within your budget should a bill fluctuate. But the key is to remember that any unused money should be reallocated to your highest-priority financial goals.
Quicken has the option to utilize a simplified version of the allocated spending plan, which you can read about here.
Enemy of Debt has a downloadable Excel file that you can grab here. Note that the fields are filled with sample data, so you’ll need to make sure to replace every cell with your own information.
Final Thoughts on Dave Ramsey’s Allocated Spending Plan
An allocated spending plan is certainly more work than many of the other budgeting methods that are popular in the personal finance world. But when it comes to effectiveness, it can be near the top of the list.
If you’re consistently struggling to keep tabs on where your money is going — or worse yet, coming up short at the end of the month — test it out for yourself.
Even just a few months on a manual budget like this can help you establish good financial habits going forward.
If you’ve tried an allocated spending plan, let us know how it went in the comments!