5 Steps to an Improved Spending Plan

Experts are always touting the benefits of budgeting. A budget typically focuses on ensuring your expenses are covered by your income, and lets you know if you’ve been spending more than you should if your income is suddenly not enough to cover your expenses in a given month. What a budget lacks, is a “spending plan”. A spending plan helps you avoid impulse purchases, and helps keep you on track for your financial goals. To do this, you need both short term and long term financial goals to help you make the appropriate spending decisions for your unique situation.

Here are five steps to an improved spending plan, and better control over your day-to-day spending:

1. Start by defining both short term and long term financial (and life) goals. If you don’t know where you’re going, it’s really hard to know when you’ve arrived at the destination! Write down your goals and refer to them regularly, so they are always at the front of your mind.

2. Keep track of the money you spend. This is where budgeting comes into play. Each month, you should have an idea how much money you expect to receive (your income) and how much you expect to spend. Your spending should take into consideration living expenses and bills, as well as savings, investments, and entertainment money. Keep a small notepad available to keep track of purchases as you make them, and match the purchases against your expectations of your spending for the month to see if you’re on track or going off course. If you overspend in one area, see if you can cut back somewhere else to keep things aligned.

3. Allocate your money toward your most important goals first. Once you have your list of expected expenses for the month, take a sheet of paper or a spreadsheet and create three columns. Place each of your expenses under one of the three columns based on their importance in your life and toward helping you reach your goals. Items in column one are most important, items in column two are medium importance, and items in column three may be the unnecessary expenses and additional spending that is fun but could be skipped altogether if you fall short of your budget during the month. As you go through the month, focus on meeting everything you’ve labeled as a top priority expense before moving to the items in columns two and three whenever possible to ensure they are met before the month’s end.

4. Spend money smarter. Learn how to ask yourself questions before making a purchase to discover if you really need it and if it’s worth the money you’re going to give for it. Often we can do without things and not even miss them if we just stop to think about the purchase before we make it.

5. Remember to review your goals. People change, and it’s not unrealistic to think that your goals may change before you reach them. If you find your short term or long term goals have shifted, simply make modifications to your spending plan to accommodate those changes.