What is a spending plan?

A spending plan is a one-page strategy for making the most of your money and reaching your goals.

A spending plan is an easy way to see where your money goes and how you can make adjustments, and is very similar to a budget.

To create a spending plan, simply:

  • Write down how much money you have coming in during an average month
  • Decide how you’re going to spend it
  • Track how your actual spending compares with your plan

Putting it down on paper or recording it online helps you see where you can make better money decisions. Your bank may have online tools that will help you automatically track your spending.

It sure feels like fun to spend money whenever I feel like it … but it’s definitely not fun to run out of money before I wanted to. That’s why I make a spending plan.
If the words “spending plan” sound scary, or like too much work, don’t panic. It’s actually simple: You write down how much money you have coming in during an average month and then decide how you’re going to spend it. Putting it down on paper helps you see where you can make better money decisions.
The right spending plan can help you set aside enough to pay your bills, have some savings for emergencies, and some money left over in your pocket …every month.

Spending plan concepts

Instructions: Click each phrase to learn more about spending plan concepts.

Income vs. take-home pay

Remember that there’s a difference between your income — the total amount you earn — and your take-home pay, or net income. That’s the amount of money earned after taxes, insurance, or other costs have been subtracted. Base your spending plan on your take-home pay. Remember to take your base pay, basic allowance for housing (BAH), special duty pay, and basic allowance for subsistence (BAS) into account when considering your total income.

Know what you spend now

To get a clear picture of how you actually spend right now, it may help to keep a spending diary for a month or two. This means saving your receipts and writing down the items and amounts for everything you spend.

Three types of expenses

  1. Fixed expenses are regular amounts that generally don’t change much — monthly expenses like rent or car payments, or bills you receive less often, like car registration or insurance.
  2. Flexible expenses are necessities. You buy these regularly but have more control over how much you spend, such as groceries and cell phone bills.
  3. Discretionary expenses are dollars you choose to spend, but don’t necessarily have to spend on things like clothes, movies, and going out to eat.

Not enough income?

After writing your spending plan, you may find that there’s not enough money to go around. Since your fixed expenses may be difficult to change, look for ways to decrease your flexible and discretionary expenses and/or increase your income.

Make trade-offs

Most people can’t afford everything they want to buy, so they have to make trade-offs. Making trade-offs may mean giving up things you can do without, or buying something less expensive that still meets your needs, in order to afford the things that are most valuable to you. The idea of making trade-offs may also relate to how you spend your time. For example, to make more money at your job, you may have to work more hours.

Be realistic and flexible

Create a spending plan you can live with. Be realistic and flexible. The trick is to live within your income so that you can pay your expenses but still have some money left-over for your own flexibility. Review your plan every month. Adjust it as your income and expenses change.

Decide how much to save

Savings is a discretionary expense because it’s up to you to decide how much of your money you’re going to set aside for your future. Each month as you pay everyone else for things you need and want, don’t forget to “pay yourself” by saving.

Note: A spending plan can help you live within your income. That means not spending money faster than you earn it and not borrowing more money than you can afford to repay.

Remember: How you spend, and how much you spend, is really up to you.

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