Tips on Budgeting: The Spending Plan
Looking for tips on budgeting?
Want to learn how to make a budget without actually making one?
One of the best tips on budgeting I can give you is to create a spending plan - without a plan, nothing happens. A spending plan is part of your personal finance budgets. In fact my spending plan is part of how I make a budget.
Why is a spending plan part of my budgeting tips?
With a budget you track what you have spent, where it has gone and if you are over or under in terms of income vs. expenses. With a spending plan you are forecasting and allocating where your money is going to go.
Think of your own life...
How many times have you planned to do something or thought of doing something without a well-thought-out plan, and then it never happens?
Your spending plan is just a part of your overall money management plan.
Now the best part about a spending plan, is that you get to choose what you want it to look like, and how it will fit in your life.
It is more important to learn how to manage your money, than how to make a budget. If you can't manage $100 then how could you manage $100,000. So learn how to manage your money by using a spending plan.
A spending plan is where you decide how you are going to spend your money. How much per month you will spend on:
- necessities (food, housing, insurance, car),
- paying off debt
- fun and entertainment
- savings in general
- contingency fund
Next take each category and assign a percentage to it. For example, you might choose to allocate your money like this:
- 55% of your net income each month for your necessities,
- 10% of your net income for fun and entertainment,
- 5% of your net income for education (to learn how to create more wealth or whatever learning opportunities you want to have),
- 5% of your net income for paying off debt
- 5% of your net income for savings (for vacations or that new flat screen TV)
- 10% of your net income for your retirement savings or financial freedom fund
- 10% or your net income for your contingency fund (6 months income in case of loss of income- or for those emergencies that may come up)
Tips on budgeting: choose an allocation that is realistic for you and fits your situation. For example, another variation:
- 60% on fixed and recurring expenses – fixed and necessary bills (power, gas, water, mortgage, etc.) fixed and discretionary bills (Cable TV, cell phone, etc.), insurance and taxes
- 40% for savings and investing – 10% into investments (401k, mutual funds, stocks, real estate), 10% long term savings and/or emergency fund, 10% short term savings (vacation, big screen TV, minor emergencies) and 10% fun money to use as you please
Tips on budgeting: use your spending plan to pay off debt, credit card debt, student loans, etc. By allocating in advance where you want your money to go you can allocate money for paying debt and forecast when it would be paid off. Also, by using a coupon code you can save a lot of money.
Whatever format you use just make sure your spending plan includes: your income projections for the year (salary, bonuses, tax refund, etc.), your projected fixed expenses, ALL of your debts and finally, any irregular but expected expenses (i.e. car repair/maintenance, annual car registration, kids karate school signup. etc.).
However there is a catch here…How are you going to know if you are on track with your spending plan?
You got it! Make a budget…
You see, you plan first but at some point you need to stop and evaluate to see if your plan is working. Based on that evaluation you would decide whether to continue with your plan or make changes.
If a spending plan and these tips on budgeting don't work for you and you want to learn how to make a budget, check out the article on personal budgeting. Or better yet, do them both!
Special thanks to Melanie from transformyourmoney.com for the ideas for this article. If you need a budget check out her site.
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