When searching online for help with your overspending, most will look for how to budget. Few will consider how to prepare a spending plan. On the surface, a spending plan and a budget may seem to be the same. They are not.
This post will propose that having spending plan is better than a budget.
What is a Spending Plan?
A spending plan is actionable and positive. Those with this type of plan are making decisions about where their money will be spent ahead of time. It is a healthy view of your financial life. It addresses both short-term expenses and long-term goals.
Budgeting is frequently compared to a diet. Diets are typically short-term approaches to address a physical health issue such as losing weight. Budgets are limiting and negative.
Preparing a Spending Plan
Before you prepare a spending plan, you should first prepare your income and expense statement. The basic concepts and formulas are the same. The most realistic plan can be best prepared if you have collected a few months of actual spending, saving, and net take-home pay. You can craft a spending plan without having several months of information. However, it might take several months of adjusting the numbers in order to have a good plan.
Your spending plan should include:
- Net take-home pay
- Automated savings –
- For your retirement
- Emergency or rainy-day fund
- Pay yourself first – fund to be used for household goals.
- Fixed obligations (including credit card minimum payments, if you are carrying balances)
- Variable spending
While most people choose to prepare a monthly plan, the period of time can be weekly, bi-weekly, or any length of time that you find helpful.
Benefits of Creating a Spending Plan with Your Spouse and Family
The most successful plans are made when at least your spouse is involved. It can be one way to start the conversation with your spouse about your household financial health. It sets the course of where you are headed financially. And that is powerful. Making it a wonderful opportunity to discuss your hopes and dreams.
You may want to hire a professional money coach to assist with the conversation. It can be quite powerful to have an unbiased third-party present during financial discussions.
You may want to include your child(ren) for part of the discussion. To be clear, not all of your spending plan should be discussed with your child(ren). But you can discuss a family vacation and how the family can save towards it. Your child(ren) can help reduce dining out expenses by helping prepare meals at home. Other ways to save can be mowing the lawn instead of hiring a landscaper or bringing snacks to work and school. You may want to make a contest for the best ideas on how to save towards the vacation. A joint effort towards a common goal does wonders for family unity.
A spending plan is great way to help make everyday decisions about how to spend household money. It is more positive than a budget which means you are likely going to be more successful in implementing it.
Have you created a spending plan? What did you learn from the experience?