How to Create a Simple Spending & Savings Plan
Need a Better Plan to Budget and Save Money? Here’s How to Do It In 3 Easy Steps.
Step #1: Know Your Financial Situation & Goals
Creating a spending and savings plan starts with knowing your finances inside and out.
Check your bank statement(s) to review what you currently earn, spend and save. Don’t forget about cash purchases! The more thorough you are, the easier it is to understand your finances.
When creating your financial situation list, separate the items by wants and needs.
For example, wants could be purchasing a new sofa to replace your current one, and needs could be paying your mortgage each month.
What You Need:
Calculate the total of the following:
Monthly and annual net income (after taxes)
Checking and savings balances
Bills and priorities (like child support received or paid)
Debts
Recreational expenses (like video games)
Create your financial goals by:
Knowing your “why.” What do you want to save money for? Why?
Making your goals SMART (Specific, Measurable, Attainable, Relevant and Time-Bound)
Assigning each goal a dollar value
How to Execute:
You can use a spreadsheet or journal to list these items, as well as write down your financial goals.
Take a moment to ponder your money mindset (your relationship with money, why you spend money the way you do, i.e. the frequency, the amount, etc.). Do you want to save enough money to become debt-free, go back to school, retire? Knowing your money mindset, aka your why, makes challenging yourself to spend and save appropriately more manageable.
Step #2: Create Your Personal Spending and Savings Plan
While no one's spending and savings plan is identical, there is a standard structure that can help you as a starting point to categorize your own financial goals, wants and needs:
The 50/30/20 Rule.
What You Need:
Divide your net income by the following:
50% for bills and financial priorities
30% for fun money (i.e. treating yourself!)
20% for savings, emergency funds or debts
How to Execute:
The 50/30/20 Rule allows you to spread out your income on a weekly or monthly basis. The best way to use it is by paying your bills and contributing to your savings first. You can set up automated payments or manually put back cash towards your financial goals, or emergency funds. This rule is just a guideline, and you should amend as appropriate for your family needs.
The main goal of your spending and savings plan is to underspend by reducing or cutting certain expenses. These expenses can come from your wants, needs or a combination of both.
If you notice your financial cushion is low (i.e. less than 30% of your net income is left after paying bills and saving), adjust your spending to put back more money. This could mean bringing your own lunch to work instead of dining out or looking for better deals from your insurance or cell plan provider.
Step #3: Schedule Money Meetings
Tracking your progress helps you stay motivated as you work on tackling your financial goals. It also gives you insight as to how well your spending and savings plan works, as well as where you can make adjusts.
You can set aside a day each week or month to review your financial plan, or consult with a Financial Planner to discuss elements you may have missed or can improve.
Regularly attending money meetings is the best way to stick to your spending and savings plan—and achieve your financial goals quicker!