Most adults have some stream of revenue, which is necessary to cover all those adult expenses like mortgages, cars, and groceries. But do you really know how much money you’re spending? Sometimes spending money becomes mindless spending just like mindless eating. Before you know it, you’ve snacked over your daily calorie allotment, and you haven’t even had a real meal. Mindless spending on all the extra little things could put a budget over your total monies coming in before paying the necessary bills. The best way to avoid “over snacking” our money away, is to create a spending plan that maps out where your money should go.
Creating a spending plan starts with income, how much money is coming into your account. Next list the all the money going out, including savings and other financial goals. If you don’t know where your money is going it’s pretty hard to keep track of it. Listing out the places money goes helps prioritize how to allocate your money.
After doing a little math, adding up the money coming in, and subtracting all the money going out, you’ll know if you are living within your means. I had an old college professor say there are only two things you can do with the budget, increase income, or reduce expenses. Simple right? Rarely!
As spending is prioritized, separate the fixed expenses and the variable expenses. Things that will reoccur every month and generally don’t change like a mortgage/rent, car payments or other loans, insurance, and subscriptions are fixed expenses. Items that are flexible or variable expenses are things like utilities, food, gas, and fun items.
Another thing to consider are the needs vs. luxuries. It’s important to know the difference between the necessities and the things we simply want. Having this understanding will allow you to prioritize correctly and spend responsibly. This does not mean you can’t have the luxuries or wants; they just need to be planned for in the spending plan.
The most successful spending plans are created by people who pay themselves first. Once all the expenses are accounted for on paper, it’s important to list yourself first. Then follow through and pay yourself first. Set the money aside in a separate savings account that is a little harder to get to, maybe a different financial institution. Know that the only money that will be in your future, is what you send there now.
Another line item in a spending plan is the TIF. When I was 18 and in college, I worked for a building contractor. One day he taught me a little about biding a job. The last item on the bid was TIF … 10%. I asked what that was, he said, “Oh, that’s ‘Things I Forgot!’ And 10% usually covered it!” If every spending plan had a TIF for 10% of spending, there would likely be fewer people in debt! The TIF should go into another separate account.
Using a spending plan teaches financial self-discipline, which is the fundamental core of financial success. When followed, it is a wonderful tool to help individuals and families get out of debt, prepare for emergencies, plan for bigger purchases, and grow your savings. All of these things contribute to a healthy financial situation, relieving the stress and anxiety that occurs when over-spending is common. Try it out, create, then follow a spending plan for the next three months and see what happens, you’ll be glad you did!
Photo 1 by Nico Smit
Photo 2 by Sharon McCutcheon