I feel like the word “Budget” gets a bad rep. Even when I hear it, I cringe a little. Having a budget does not mean you have to penny-pinch or not buy the things you want. What it does mean is simply tracking the money coming in and going out. It also means, you build up that emergency fund and do more of the “pay yourself first” adage to save for a rainy day. To help us all get a more positive approach, let’s call it a Spending Plan.
7 Steps to Creating a Successful Spending Plan
1. List out your monthly income
It is important to get a clear picture of money coming in. Let’s start with your take home pay. This is a good time to evaluate if you are having too little or too much taken out for taxes as well. Do you consistently get refunds or consistently owe taxes? Might be time to make a withholding adjustment. Here is where you can look at your paycheck and review if the benefit deductions and costs make sense.
Are you contributing money to your company retirement plan? It may be time to reevaluate. Maybe this is pension income or a social security deposit you are reviewing for accuracy. Make sure you are receiving what you should be and that the deductions are correct. Write down all the sources of monthly income coming in, get the net amount after taxes and benefit deductions.
2. List out the monthly and annual expenses
It tends to be easier to start with the larger fixed expenses, rent/mortgage, insurance, auto loans and student loans. Then maybe smaller fixed expenses like your cell phone and subscriptions. Then move on to the fluctuating household expenses gas, groceries, utilities, personal grooming, childcare, pet expenses and any other miscellaneous items. It might be helpful to look at a few months to get some averages.
3. Make categories for savings and upcoming items
After the income and expenses are listed out, move to the annual or future items. You will want to add in sections for the larger one-off items and for savings. Such as, replenishing or building your emergency fund. Adding to a bucket for replacing your vehicle, replacing your air conditioning, holiday spending or it could be something a lot more fun like a vacation goal. Perhaps, it is for a down payment on a house or vacation property. Maybe it is remodeling that tacky bathroom from the 70s. Whatever the case, make a category for this and estimate the amount needed.
4. Cut out the impulse spending
This is not a fun step and much easier said than done. If you have to build in a special miscellaneous monthly category for Amazon purchases, then do so. But the clicking on impulse just because it is prime day, needs to stay under control. I mean if you need socks then great, you needed socks.
However, the tap light for the closet when the hall light is two feet away might be a bit excessive. You know that “save for later” button? Use that. Add to the cart but sleep on it before you checkout. I feel like my husband is going to read this paragraph and print it for our fridge. Just be mindful of your shopping habits, it will pay off in the long run.
5. Utilize automated tools
Maybe writing it all out once or twice is doable but maintaining a budget can get time consuming and let’s face it, BORING. Here is where technology can be your friend. Make use of the apps available for monitoring your ongoing budget. There are so many great options available, but here are a few to check out: PocketGuard, Mint, YNAB, Goodbudget, Honeydue and Personal Capital. Also, pretty much every credit card company has your spending already categorized for you in a lovely chart. This can bring your attention to things you may have missed or some of those larger impulse buys and maybe even the nonessentials you will want to reign in or as I like to think of it convert to more savings dollars.
6. Decide on improvement actions
Now that you have it all down, perhaps a few months in and you are tracking things well, this is the time to take action. Can you trim expenses and increase your savings? Are there things you are paying for that you did not realize you were or that they amounted to as much spending as they did? What are your goals and priorities? If you really want that vacation, can you make some trimming or sacrifices to speed up the funding towards this? Do you have credit card debt that is slowing down your progress?
Can you allocate more to chip away at high interest rate debt? This might be an area you end up being a bit stuck. Our office has financial planners and we also have financial coaching to help in these exact instances. If you need more guidance and structure or direct coaching on solutions then it might be time to call in an expert, to call in a financial coach.
7. Review and revise your plan
This can be a few months out to a year or more. Creating a budget is only half the battle, monitoring it and taking ongoing action is the other half. Down the road it is a good idea to take a giant step back and review your progress. How have you been doing? Are you on track with the plan? Are there things that need to be updated or added? It could be your income changed or your expenses. Perhaps you met a goal, and it is time to refocus on a new one. This can be a very exciting step to see the progress you have made and possibly even reward yourself!
Going through the process you will find these steps are a lot easier than they seem. You might even start to realize very easy ways to save more, or you might even find that you are saving plenty and can live a little for the now. Something my mom always used to say, “Everything in moderation”.
I plan on going through this process with my own household. Having a little one and another on the way has taken us a bit farther from our spending plan than we used to be.
Happy Planning!
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