What is a spending plan?

A spending plan is a simple strategy for making the most of your money and reaching your financial goals.

How do you create a spending plan? On a simple, one-page form you write down the money you have coming in and what you spend in an average month. Putting it down on paper helps you see where you can improve and make better money decisions.

Some people call this making a “budget.” But we happen to like the term “spending plan” a lot better. Because it’s a good reminder that how you spend, and how much you spend, is really up to you.

A spending plan can help you live within your means. Having a lifestyle that you can afford.  Not spending money faster than you earn it and not borrowing more money than you can afford to repay.

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.

If the words “spending plan” sound scary, or like too much work, don’t panic. A spending plan helps you get control over your money and spending. It’s actually simple: your spending plan can help you set aside enough to pay your bills and save for emergencies and for your long-term goals. A Spending Plan:

  • Becomes your personal strategy
  • Can be a simple document or form
  • Helps you live within your means
  • Helps you avoid too much debt
  • Helps you pay your bills
  • Highlights your savings and money to spend

Having a written spending plan can help you make better money decisions. Try putting it down on paper or recording it online so you can review and make regular adjustments.

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

What you need to know about a spending plan

Be sure to record all your sources of income — your Social Security payments, retirement plan withdrawals, investment dividends, etc. And, if you’re working, don’t forget your take-home income. Base your spending plan on all your income sources.

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.

Not sure where your money’s going? 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. ? It’s easy to keep track of your spending: keep your receipts and review your monthly statements. This means saving your receipts and writing down the items and amounts for everything you spend. Check with your financial institution or credit card company to see if they offer free online tools to track and categorize your spending.

Types of expenses

There are three types of expenses: fixed, flexible, and discretionary. It’s important to know the difference among the three.

Fixed expenses are regular amounts that generally don’t change much. They can be monthly expenses like rent or car payments. Or they can be bills you receive less frequently, like car registration or insurance.

Flexible expenses also happen on a regular basis and are also for necessities. But, with flexible expenses you have more control over how much you spend. For example, how much you spend on groceries or how many long distance phone calls you make in a month.

Finally, there are the expenses you have the most control over. These are called discretionary expenses. This is the money you choose to spend, but don’t necessarily have to spend on things like clothes, movies, and going out to eat. Another important discretionary expense is savings. It’s up to you to decide how much of your money you’re going to set aside for your future.

gray and white wallet

my spending plan

Download My Spending Plan (PDF)

You have a spending plan… now what?

After writing your spending plan, you may find that there’s not enough money to go around. Be realistic and flexible. The goal is to spend less than you make so you still have some money left over for other things you want to do.

Since your fixed expenses may be difficult to change, look for ways to decrease your flexible and discretionary expenses and/or increase your income.

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.

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.

To make your monthly income last, pay for things in this order.

  1. Pay your monthly bills. There are many potential penalties if you pay late, such as late fees, losing possession of things you’ve bought on credit, even being evicted from an apartment!
  2. Set aside the money you’ll need for your weekly and day-to-day expenses, like groceries and bus fare.
  3. Put money into savings. Try to build two months of take-home pay for an unexpected financial emergency.
  4. Set aside money for larger expenses you know are coming, such as car repairs or appliances.
  5. Set aside money for your major future goals whether it’s a home, college for your children, a new car, or travel.


Remember: Paying bills late can seriously damage your future ability to borrow. If you begin to earn more, increase the amount you save as much as you can.

spending habits checklist

Download Spending Habits Checklist (PDF)

spending step-by-step

To make your monthly income last, pay for things in this order.

  1. Put money into savings – Try to build savings to cover three to six months of expenses so that you have money set aside for an unexpected financial emergency.
  2. Pay your monthly bills – There are many potential penalties if you pay late, such as late fees, losing possession of things you’ve bought on credit, even being evicted from an apartment.
  3. Set aside money you’ll need for your weekly and day-to-day expenses. Like parking fees or laundry.
  4. Set aside money for larger expenses – You know are coming, such as car repairs or appliances.
  5. Set aside money for your major future goals – Such as a house, travel, or retirement savings.
  6. Save more as you earn more. If you begin to earn more, increase the amount you save as much as you can.

decrease your expenses

Do you find yourself running short on cash month-to-month? The solution is easy to identify but may be challenging to execute; increase your income and/or decrease your expenses. Here are helpful tips for decreasing the expense side of your money picture:

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. If you primarily use a debit or credit card, you can also review the last 2-3 months of statements.

  • When you pay your bills on time, you avoid:
    • Late fees
    • Extra finance charges
    • Disconnection of (and re-connection fees for) phone, electricity, or other services
    • The cost of eviction
    • Repossession of cars or other items
    • Bill collectors
  • Avoid overdrafts! Ask your bank about overdraft protection.
  • Whenever possible, use ATMs where you won’t incur a fee. Ask you bank about free ATM access.
  • Steer clear of high-cost check cashing stores, payday loans, and credit card cash advances.
  • If you have debts, pay off your highest interest accounts first.
  • When making a purchase, consider your needs. Resist impulse buying. Ask yourself what needs you’re trying to fill by making this purchase. Is this item something you want or truly need?
  • Determine your budget. Decide how much you can spend on this purchase and still cover your other expenses.
  • Research and inspect products before you buy. Determine when, how, and where to buy the item to get the most for your money.
  • Comparison shop. Shop around by Internet, compare ads in the newspaper, shop by telephone, and look at catalogues, too. Call three stores to compare prices, models, warranties, and the store return policies. Be sure to confirm the price. Ask about any extra charges, like delivery.
  • Watch for sales, coupons, and rebate offers to get the best price. Depending on the item and the store, you may be able to negotiate the price.
  • Find the best overall value. Remember, your goal is value, not just the lowest price tag. Look for the features and quality you want, good customer service, a fair price, and a flexible return policy.

Most people can’t afford everything they want to buy, so they have to make tradeoffs. Making tradeoffs 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.

Review the types of insurance you have, your coverage and deductibles. Comparison shop with different insurance carriers. While you want to maintain adequate coverage, you may find ways to save. Ask your insurance carrier(s) about any discounts or special rates you may qualify for. For example:

Homeowners Insurance

  • Can you receive a discount by adding smoke alarms or other protective devices?
  • If the value of your home has depreciated since you purchased insurance, are you eligible for a rate reduction?
  • If you are paying for Private Mortgage Insurance (PMI), check with your lender to see if you are currently required to have it.
  • Find out if your insurance cost is based on the total value of your house and land. If so, you may be able to cut costs by paying rates based only on the value of the house.

Car Insurance

  • Ask your agent about possible discounts. Many insurers offer reduced rates based on safe driving records, safety devices (alarms, airbags, etc.), non-smoking, and good grades (for high school and college students).
  • Consider temporarily dropping or reducing any optional coverages until your financial situation is stronger.

  • Owning a car is a major expense, so consider whether you really need one. You can save a lot of money if you really don’t need a car or can manage to live without one. By not owning a car, you can avoid saving for a down payment, making monthly car loan payments, and all of the other expenses that go along with car ownership such as insurance, gas, maintenance, and repairs.
  • Explore alternatives to car ownership. There are definitely cheaper ways of getting yourself from here to there. Consider taking public transportation or using ride sharing services if available in your area; getting a moped; or, riding in a carpool. If you can walk or ride your bike, you’ll save money and get some free exercise. Having one less car on the road cuts back on traffic and air pollution. Even if you don’t own a car, you can rent a car now and then when you need one.
  • If you take public transportation, it may be much less expensive to buy monthly pass than to pay by the ride.
  • When driving, try to combine your errands into one trip. Plan your route to minimize your mileage.
  • Keep your car in good working order. When a vehicle runs well, it costs less to use.
  • If you currently use more than one vehicle, consider cutting back to just one.
  • Save money by cutting back on restaurant meals.
  • Make a grocery shopping list and bring it with you.
  • Shop at discount or regular grocery stores vs. higher-priced quick stop stores.
  • Meal plan based on sales, coupons, and grocery store circulars.
  • Buy products you use frequently in large sizes or bulk quantities.
  • Consider joining grocery store clubs. Membership may entitle you to discount prices.
  • Buy lower-priced generic or store brand items when available.
  • Avoid grocery shopping when you’re hungry.
  • Limit your number of grocery shopping trips. This can help you reduce spending on impulse items.
  • If you have school-age children, find out if your family qualifies for free or reduced-price school meals.
  • Ask your utility companies about discount plans you may qualify for. Some offer budget billing and payment plans so that your utility bill is same amount every month. This can help you stabilize your spending.
  • Vacuum vent registers and wall heaters at least once a year. Make sure that your furniture is not blocking them.
  • Follow the manufacturer’s guidelines to use your furnace and water heater in a high efficiency manner.
  • Reduce your water bill by using low-flow plumbing fixtures.
  • Keep your home in good repair. Leaky faucets and drafty doors or windows increase your costs. The repairs are often simple and inexpensive.
  • Replace your conventional incandescent light bulbs with fluorescent bulbs. Fluorescent bulbs can last up to 10,000 hours and use roughly 70% less electricity.
  • Explore package deals, family plans, and unlimited talk/text/data plans.
  • Consider what features you really need and will use.
  • Ask questions. Make sure you understand all the features and fees.
  • Read the contract before you sign—including the fine print.
  • Keep track of your usage. Some companies let you review your account online or by phone.
  • Pay your bill on time and in full. This will save on late fees. It’s also an important step in building and maintaining good credit.
  • When you renew a service contract, ask if you’re eligible for a free phone upgrade or price discounts on new models.
  • If you decide to cancel your service to reduce your costs, double check your contract regarding cancellation fees.
  • If you use a prepaid phone, buy minutes in higher blocks to reduce the cost per minute.
  • Consider your needs for these services.
  • Shop around. Compare what’s offered by different vendors.
  • Explore low-cost providers and package deals, including package bundles available with phone services.
  • Ask providers if you can get a discount by enrolling in “auto pay” or “paperless billing”.
  • If you have health insurance, take advantage of your free annual check-ups to monitor and manage your health, preventively.
  • If you have health insurance, save money by selecting in-network providers.
  • If you don’t have health insurance, look for a nearby community health center. Many offer services on a sliding scale depending on your income.
  • Let your physicians know that you are trying to save money on prescriptions.
  • If you need a prescription, ask your physicians if they have any no-cost samples from pharmaceutical companies.
  • Ask your physician and/or pharmacist if there is a lower-cost generic version of the prescribed drug.
  • Explore mail order pharmacies. Many offer discounts on orders of three months or more.
  • Airline ticket prices frequently fluctuate. Start pricing tickets at least 21 days in advance of your trip. Some airlines and travel Web sites offer special rates very near the flight date.
  • Be flexible about the hours and days you will fly.
  • Search your local newspaper and online for restaurant and entertainment coupons and other discounts.
  • Save money on movies by going to bargain-priced shows. If allowed, bring your own snacks to the theater.

Think about ways you might be able to obtain something you want at a lower cost or even for free. For example:

  • Take advantage of free events in your community, such as festivals, sporting events, concerts, theater, etc.
  • You might be able to see a play or hear a concert by volunteering to usher.
  • Get some friends together in order to qualify for a volume or group discount.
  • Borrow books/videos/CDs from the library vs. buying them.
  • Share a magazine subscription with a friend rather than buying single issues off the rack.

knowledge check

1. Mr. Smith wants to pay for things in the right order so that her monthly income covers her needs.  Read Sergeant Smith’s thoughts and then select the best choice for him.

 
 
 

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