I know what you’re thinking: “Spending plan? Isn’t that just a fancy word for budgeting?” Well, sort of, but hear me out! The word “budget” tends to make people feel trapped or deprived like they’re in some endless game of financial limbo. That’s why I prefer to call it a Spending Plan. In reality, it’s not about cutting out everything you love; it’s about directing your money toward the things that matter most to you!
Why a Spending Plan Works Better Than a Budget
Think of a spending plan as your new BFF (Best Financial Friend)! It’s not just a bunch of rules—it’s your guide to living the life you want. For example, a spending plan helps you know where your money is going so you can ensure it’s heading toward your goals (like that dream vacation or starting your own business). With a spending plan, you are giving your money an assignment, a job to perform.
How to Create Your Spending Plan in 4 Simple Steps
By all means, let’s reframe the way we think about managing money. Instead of feeling restricted by a “budget,” imagine having a “spending plan” that guides you toward your dreams!
Key Points:
- Step 1: Name Your Priorities. What are the top 3 things that make you happy? Your spending plan should reflect these! Here’s an example – there’s a great steakhouse you love to dine at and a special bottle of wine. You’d love to do that once a month. Put that in your budget and go do it!
- Step 2: Spot the Leaks. Look at where your money is sneaking off to, this can be subscriptions you forgot about, little treats that don’t bring joy, etc. For instance, have you looked at your bank account to see the frequency of app charges…and notice you don’t use those apps anymore? Cancel them, and fast.
- Step 3: Make it a Fun Challenge. Turn saving into a game. How much can you save this month by finding creative ways to cut back, or eliminating those sneaky subscriptions? Honestly, I’m not one to try to lower my electric bill – but I do love it when I find something I am paying for and no longer use. Or figure out how to bundle some things and get a savings over my current payment. Recently, I lowered my auto insurance by $90 per month…just by shopping it around. Took me one hour and saved me over $1,000.
- Celebrate Wins: Small wins add up! Did you save $5 today? Awesome! Reward yourself with a little celebration (yes, even a happy dance counts).
In order to keep myself in check, I did my own review this past month. I looked at all of those small, incidental things I’ve signed up for and no longer use. Some I had forgotten all about. As a result, I found $87 in monthly costs. And poof, now they are gone!
Spending Plan vs Budget: What’s the Real Difference
A spending plan and a budget are similar tools, but the mindset is different. A budget often feels restrictive and focuses on limiting what you can’t spend. It reminds me of a diet – restrictive and bossy. A spending plan is empowering as it focuses on intentionally directing your money toward your priorities and goals. Instead of saying “I can’t afford that,” a spending plan helps you say “I’m choosing to spend my money on what matters most to me.” It’s the same financial management, but with a more positive, goal-oriented approach.
Frequently Asked Questions About Spending Plans
How do I start a spending plan if I have irregular income?
Starting a spending plan with irregular income requires a slightly different approach. First, calculate your average monthly income over the past 6-12 months. Use the lowest month as your baseline for essential expenses (housing, utilities, food). When you earn more than your baseline, allocate the extra toward savings, debt payoff, or variable expenses. Build an emergency fund of 3-6 months of expenses to cover lean months. Prioritize your must-pay bills first, then assign money to other categories as income arrives.
What is the 50/30/20 spending plan rule?
The 50/30/20 rule is a simple spending plan framework that divides your after-tax income into three categories: 50% for needs (housing, utilities, groceries, insurance, minimum debt payments), 30% for wants (dining out, entertainment, hobbies, subscriptions), and 20% for savings and debt payoff (emergency fund, retirement, extra debt payments). This rule provides a balanced starting point, though you can adjust the percentages based on your personal situation and financial goals.
How often should I review my spending plan?
Review your spending plan monthly at minimum. Set aside 30 minutes at the end of each month to track actual spending against your plan, identify any overspending, and adjust categories as needed. Do a more thorough quarterly review to assess progress toward bigger goals and make seasonal adjustments. Your spending plan is a living document—life changes, income fluctuates, and priorities shift, so regular reviews keep your plan realistic and effective.
What if I go over budget in one category of my spending plan?
Going over in one category isn’t a failure—it’s feedback! First, don’t abandon your entire spending plan. Instead, look at where the money came from. Did you borrow from another category? Adjust next month by either reducing that overspent category or increasing its allocation if you realize you underestimated. The key is flexibility. A spending plan should adapt to your real life, not be a rigid system that makes you feel guilty. Learn from the overage and adjust accordingly.
Do I need special software or apps to create a spending plan?
No, you don’t need fancy software to create a spending plan! You can start with a simple notebook, spreadsheet, or even pen and paper. That said, apps like Mint, YNAB (You Need A Budget), EveryDollar, or PocketGuard can make tracking easier by automatically categorizing transactions and showing real-time spending. Choose whatever method you’ll actually use consistently. The best spending plan is the one you’ll stick with, whether that’s high-tech or low-tech.
Ready to Start Your Spending Plan? Here’s How
Ready to create your own spending plan? Grab your favorite notebook and let’s make it happen! I’ll be here every step of the way to cheer you on!