Creating a Spending Plan

If you would like to get in control of your finances, a great place to start is figuring out what to do with your money each month. 

 

Most people have general goals or ideas of how they should be spending their money. However, how often do you get to the end of the month and wonder where all of your money went?

 

Unless you map out a specific spending plan for each dollar you earn, you’re unlikely to make any progress towards your goals.

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Spending Plan Template

To create your spending plan, download my free Excel template. If you don’t have Excel, this will also work with Google Sheets.

Monthly Income

First, find your monthly after-tax income. This should be the amount that actually shows up on your paycheck or in your checking account.  If you get paid weekly or semi-monthly, calculate how much you make per month. We’ll be planning by month since most expenses are paid monthly.

Step 1: Obligations and Expenses

The first step to creating your spending plan is to add any key expenses that you pay each month. This should include top priority expenses, such as rent, insurance, groceries, and gas. This should not include things like restaurants or gym memberships. We’ll cover that in step 4.

 

Next, add any debt payments or obligations that you owe on a monthly basis. This could be student loan payments, mortgage payments, or anything else that you know you will need to pay every month. 

 

If the amounts for any of your obligations or expenses vary from month to month, make sure you overestimate the amount you will need to pay. These are your top priority spending areas, so the last thing you want to do is not save enough to pay these.

Step 2: Retirement

After planning your obligations and expenses, your next highest priority should be retirement savings.


Even if it’s just a small amount, this is where you should set aside money for a 401k or IRA. To learn more about saving for retirement and the power of starting early, click here.

Step 3: Savings Goals

Now, it’s time to start looking ahead at your savings goals. What would you like to have money for in the future? Whether it’s a house, car, wedding, vacation, or something else plan it out here. 

 

If you have a specific time when you plan to make a big purchase, you should calculate how much you need to set aside each month in order to meet your goal. If you don’t have a specific time, it’s still a good idea to set aside money for things you think you will want in the future. 

 

A few savings goals that I like to include are:

  • Mistakes - this can cover accidental costs like parking tickets, bank fees, or replacing something that you lose or break

  • Emergencies - extra cash that can be used for any emergencies for you or your family

  • Gifts - plan ahead for birthdays and holidays

Step 4: Spending Buckets

Now comes the fun part. Most people don’t have a monthly spending plan, so they never actually know how much they should spend on their wants. This makes them feel guilty or nervous when they buy things that they know they don’t need. 

 

This shouldn’t be the case. Personal finance shouldn’t just be about the boring stuff. Personal finance is about planning out your expenses, obligations, and savings so that you’re free to use the rest of your money for whatever you want without worrying. 

 

To make this step easier, plan out what you like to spend money on using buckets. Do you typically spend on a gym membership, supplements, and yoga classes? Include all of them in a ‘health/fitness’ bucket.

 

This step can be used to plan daily expenses, like coffee, or infrequent expenses, like concerts. Just determine how much you spend per month on average. 

 

A few buckets that I like to include are:

  • Personal investment - books, courses, or anything else to help you grow and improve yourself

  • Date fund - plan for spontaneous nights with your friends or significant other

 

Keep in mind that you should leave some money left over in the ‘Remaining Income’ cell. It’s impossible to predict everything you will want to spend money on each month, so you want to be prepared.

Review

Now that your monthly spending plan is complete, take a few minutes to review it. Did you forget any expenses or obligations? Are you contributing enough for retirement? Do you have any other saving goals? You’ll want to check back and make adjustments over time as you earn more income or your goals change.

All done? Great!

Making a monthly spending plan is a good first step, but it’s useless unless you actually stick to it. Click here to learn how to execute your spending plan.