How To Make a Spending Plan (or Budget)

Do you hate the “B” word?

Some people absolutely hate the word “budget”, and I get it. Being on a budget is like being on a financial “diet”, and even though we know that a good budget is important in improving our financial health, the feelings of restriction and deprivation can sometimes be so overwhelming. So, let’s change our mindset- instead of seeing a budget as something that controls us, let’s see it as it really is- a tool that WE CONTROL to help us reach our goals. Being in control of our money means being in control of our lives, and who doesn’t like the sound of that? From here on out, we’re not “on a budget”. We have a SPENDING PLAN. We plan how much money goes to what every day, week, month, and year. We are not controlled by our budget. Instead, we control our spending plan.

*Continue reading, while I crawl off my travel-size soapbox (slowly)*

How to make a spending plan (or budget)

1. Know your income. How much are you expecting to make in a week, in two weeks, in a month?
2. List out all of your fixed, variable, and other expenses. Note any hard due dates (this will be helpful later when we go over making adjustments to your spending plan), and don’t get stuck here. If you don’t know exact numbers, just make your best guess and move forward. Keep moving forward.
3. Subtract the total of your expenses from your income. What did you find? Are you planning to spend more than you make? If so…
4. Analyze and make adjustments to fit your goals. We all have big dreams, but sometimes, the goal is just to put food on the table, and that’s okay.  
5. Rinse and repeat this process as often as you need to…even after you’ve reached those big dreams.

Ready? Good. Let’s do this!

Know your income.

If you are a salaried employee and/or rely on one full-time job as your only source of income, this part will be easier for you since your pay won’t tend to fluctuate drastically from month-to-month. If you are an hourly employee and/or rely on a few different jobs as your source of income, then do your best to guesstimate how much you’ll be getting paid. Also, think about how often you get paid. Is it weekly, bi-weekly, monthly? This is good to know when planning to pay fixed expenses that are due on specific days of the month.

List out all of your fixed, variable, and other expenses.

Guesstimate (Guess + Estimate) Your Numbers

The two basic things you need to know in order to make a spending plan are: how much money is coming in (your income), and how much money is going out (your expenses). If you are just starting out on your financial health journey and have absolutely no idea how much money is going out, don’t worry. Like on any journey, you will find yourself changing in some ways, and your spending plan will be constantly changing with you. At this point, let’s just make our best guesstimates and move forward. Keep moving forward, always. 

What Are Your Expenses?

A few different types of expenses that you may consider when planning out your spending plan are fixed expenses, variable expenses, and “other” expenses.

• Fixed expenses are your regular expenses (your bills). You expect them to be due around the same time, and you expect to pay around the same amount for these bills. Examples include your rent/mortgage, utilities, trash service, phone/internet, car loan, insurances, subscriptions, credit cards, etc.
• Variable expenses can be regular expenses as well, but for the most part, they do not have a due date, and the amount spent likely varies from month-to-month. These expenses include money spent on things such as gas, groceries, clothing, entertainment, personal care items, home/school supplies, medicines/co-pays, etc.
• Other expenses include any outgoing monies that do not fit in either your fixed or variable expenses. Some examples include money spent on a vacation/staycation, personal loans to family/friends, paying for expenses due to an accident that the insurance company does not cover, etc.

Now that you have a rough idea of your numbers, let’s put it all together.

Subtract your total expenses from your total income.

Once you’ve written out your spending plan, what did you find? Are you planning to spend less than you make or are you planning to spend more than you make? If it’s the latter, your plan needs some tweaking (not twerking, although that might be fun too). 

Analyze and make adjustments to fit your goals.

We all have big dreams, but sometimes, the goal is just to put food on the table, and that’s okay. After creating your spending plan (and you should do this often), take a good look at it. Do you really NEED to spend the amounts you’re planning to spend on the things you’re planning to spend it on? Does your spending plan align with your goals? If not, then are your wants getting in the way of your needs? 

Also, look at other things that may be getting in the way of a good spending plan. For example, are all (or most) of your bills due at the beginning of the month, leaving you eating fried egg sandwiches and ramen (one of my favorite meals, by the way) until your next paycheck? Something like this can be an easy fix- call the company’s customer service line and ask if they’ll work with you to move your due dates around. Worst case, they say no and your bill stays where it has been. Best case, they say yes! You won’t know until you ask, so just do it!

Whatever your analysis and adjustment phase turns up, be honest with yourself and remember, this is YOUR plan. Take control of it.

And finally…

Rinse and repeat this process as often as you need to…even after you’ve reached those big dreams.