Skip the Budget, Make a Spending Plan Instead

For many people, the word “budget” feels like eating rotten food: just saying it can leave an awful taste in the mouth. 

But a budget is simply a plan, a way to track how you spend and save your money each week, month, etc. However, people often think the term “budget” limits their living rather than supports their goals. So many people are shifting to thinking of a budget as a “spending plan” instead. A spending plan invites people to consider their financial story and hopes. It asks them to think about their values and priorities, or where they would like to spend and save money. For many, a budget feels like a rulebook of how not to spend their money, while a spending plan feels more like a guide to follow. Although a spending plan and budget are the same thing, many financial advisors are shifting to using the term spending plan instead of budget. Many prefer the concept of a spending plan, because it feels more flexible and forgiving than a budget.

Creating a Spending Plan

In short, a spending plan is a way to track your spending and save your money. In order to begin one, you’ll need a place to record your information. You can track this information with a journal or computer spreadsheet, or you may prefer to use apps like YouNeedABudget.  

To get started, knowing how much money is coming in each month is helpful. Or, if you have a lump sum, say from a student scholarship for living costs, a loan, or money your parents put aside for college, then it would be good to divide this lump sum into as many months as you expect it to last. In other words, think of savings of $20,000 as an income of $2,000 a month, to last you the ten months of an academic year at college. 

After calculating your monthly income, the next step is separating monthly expenses into six categories. Fixed essential costs cover all of the monthly payments that are the same each month, like car insurance or a phone bill. Variable essential costs are the necessary payments like gas or groceries where the total cost varies monthly. Current wants represent the fun spending of each month, like going out to eat or getting a manicure. Future wants are fun-saving goals that require more money, like a vacation or a new gaming console. Future needs are another type of savings that help cover eventual essential costs, such as saving up for college or a new car. Finally, an emergency fund category is vital in a spending plan, as it can help save for life’s unexpected moments. Many financial advisors recommend building up three to six months of expenses in an emergency fund. If relevant, creating an emergency fund for items such as a car or a pet can also be beneficial, so any potential visit to the mechanic or vet is more affordable.

A seventh category you may want to account for is “yearly or irregular” expenses, like car registrations or subscriptions to streaming services. By anticipating significant annual payments, it is easier to cover them. To do this, divide the total cost of the annual fee by 12 and save a little each month. For example, if your car registration costs $300 in July, save $25 each month for a year to help make the bill more affordable. 

There are many ways of creating and tracking a spending plan. Exploring different money-saving tips and tricks can help you see what works best for you. One trick some people utilize is choosing one day a week to avoid spending money, which might mean cooking dinner at home and skipping the morning trip to Starbucks. Other people will cut out one type of casual spending for a month to see how much extra money they can save, such as removing gas station snacks or fast food for thirty days. Checking your bank account and spending consistently throughout the month is also helpful. Keeping an eye on actual spending can make it easier to stick to a plan or adjust when overspending in one category occurs.

Benefits of Tracking Money

There are benefits to tracking monthly spending and savings. It can help prevent overspending and keep you from unnecessary debt. A spending plan, especially when starting your financial journey, can help you develop financial independence faster and lay a foundation for healthy financial habits that will benefit you in the long run. For example, by including a practice of saving a portion of each paycheck in your spending plan, you are starting a strong financial habit early in life. Even if you start by only saving five dollars each month, the practice will make it easier to maintain and grow monthly savings as your paycheck increases. Before long, that monthly five dollars could turn into fifty dollars and then five hundred dollars. Creating an early habit of tracking your money and putting money aside can help you reach your bigger saving goals, like buying a laptop, faster.

A spending plan with emergency savings can also make sudden and unforeseen circumstances less financially detrimental. For instance, new car tires are easier to buy stress-free when the funds are already set aside for something unexpected. Tracking spending can help reduce stress and better inform what is or is not affordable. According to a 2018 study by the Certified Financial Planner Board of Standards, consumers with a budget felt 62 percent more in control of their spending and 55 percent more confident with their spending than those consumers who didn’t budget.

Aligning Spending Plans with Personal Values

For people creating a spending plan or budget for the first time, it can be beneficial to start by writing a list of life priorities and values before even looking at monthly spending and savings. We spend our money on what we value, whether consciously or unconsciously, so knowing your personal priorities can help create a plan that’s better aligned with your current and future lifestyle.

By starting a spending plan with the questions “Why do I want to track my spending, and what am I saving for?” people are often better able to stay focused on what’s most important to them, particularly during big spending seasons like the holidays. 

Ultimately, a spending plan is a tool that supports people in living the life they want, even as those wants shift. As priorities change or events pop up, a spending plan can change too. Sometimes people need to shift money from one category to another if overspending happens. For instance, if someone accidentally spends more than they should on dinner with friends, they may pull some money from their shopping category to adjust for overspending. The same can be true for savings. Maybe the new gaming console you’ve been saving for feels less critical when you decide to buy a car, so you put the money towards a savings goal for a car instead. Spending plans should be constantly revisited as you learn more about yourself, your priorities, and your relationship with money. 

No matter what you choose to call your method for managing money, creating a plan is essential in developing financial confidence and building the life you want to live. Be it a budget or spending plan, it is in your best interest to track your money and see where it takes you.