Spending plan

The Biggest Bang For Your Financial Planning Buck: The Spending Plan

Two important questions: “Do you know where your money goes?” And, “Are you spending on the things that matter most to living a satisfying and fulfilling life?” I’m working on some presentations this week and it struck me that a spending plan is one of those things people avoid, don’t do or aren’t aware of. Yet, a spending plan is the one best thing you can do to improve your financial situation now and in the decades ahead.

The “New & Improved” Budget!

So, what is a spending plan and what’s so great about it? It used to be known as a budget, but that word tends to elicit anxiety, fear and dread. If you’re already getting cold sweats and thinking about doing something else hang in there. The spending plan is the “new & improved” version and a very powerful tool.

The spending plan begins with finding out where your money currently goes. There are spreadsheets and online tools available to help you track spending. Mint and Yodlee are two that readily come to mind and are available for free. Both of these applications automatically import information from your credit cards and checking accounts. All you need to do is categorize your spending.

Seeing this information in a single report is very powerful. You are able to see what you earn, what you spend and if there is a positive or negative number at the bottom. That is, are you spending more than you earn, or is there some leftover for savings.

The Spending Plan Includes Savings

An important distinction of a spending plan is that it also provides for savings. Saving is a necessity. And if it helps to call it a spending and savings plan, do so. If you are spending more than you earn, use your spending plan to help you get back on the right track.

Have too much credit card debt? Debt is the “anti savings”, basically a ball and chain dragging you down. The spending report allows you to view your categories and begin to prioritize. Many things we spend money on are choices we make (but often are made without conscious thought!) The spending plan becomes a tool to evaluate trade-offs. If we spend less on this, we have more money for that.

This exercise doesn’t cost anything but your time and yet can have a huge impact on your future. I don’t remember exact statistics but I believe less than half of adults actually use this to manage their financial lives. Once you know where your money goes you can begin to tackle the second question about whether your money is going to the right places. Being clear on your values and priorities and making conscious choices allows that to happen. Spending our money on what matters most is the closest we get to money buying happiness.

P.S. If you like spreadsheets or paper forms you can print, email me and I’ll be happy to send them to you. Let me know if you are a retiree or not yet retired.

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