I hate the word “budget.”
Everything about a budget frustrates me, especially since I’ve had an irregular income for so long. When I wanted to change my money habits and take control of my finances, I finally stopped using a budget and began using a spending plan.
The differences between a budget and a spending plan are largely psychological. I’ve come to associate budgets with restriction and negativity, so creating a spending plan changed the way I interact with money.
Here’s how you can move from a budget mindset to a spending plan mindset — and better take control of your finances.
What’s wrong with a budget?
There isn’t actually anything wrong with a budget. After all, a budget can be a great way to plan your monthly spending and make sure you live within your means.
My problem with a budget is the way it feels restrictive. You start to feel like your money is controlling you, rather than you taking charge of your finances.
With a budget, you are far more likely to focus on small-picture items and month-to-month expenses. It’s all about how many dollars you can spend on groceries, and whether or not you have enough left in the entertainment category to go see a movie.
Budgets can provoke feelings of restriction, making it seem as though scarcity is the norm. If you’re watching every penny in every category, trying to keep from going over, it can create negative feelings toward money — and resentment toward your budget.
What is a spending plan?
Instead of feeling like I have to base everything on a month-to-month, small-picture budget, creating a spending plan allows me to take a more holistic view of my finances and future.
Rather than budgeting X amount of dollars in specific categories and spending those categories down, creating a spending plan is about identifying priorities and putting money toward those items.
Once the major, big-picture items are covered, you can use your money however you want until it’s gone for that month.
My spending plan doesn’t feel limiting. I know what matters to me, and I direct my financial resources to those areas. All of my major spending categories are based on my long-term financial and life goals (once my necessities are taken care of).
I prioritize these categories:
- Needs (housing, groceries, insurance, bills, etc.)
- Emergency fund
- Higher education for my son
- Learning experiences and extracurricular activities for my son
I have a set amount of money that goes toward the items on my priority list. Once those are taken care of, I spend until the money’s gone on whatever I want — no matter the category.
By funding what matters most to you, it’s possible to feel good about where your money is going. Plus, when you fund your most important priorities first, you don’t feel as bad when you have to drop something that doesn’t matter so much.
How to create a spending plan
Your plan works best when it’s based on your long-term financial goals. A spending plan is about figuring out how to use your money in a way that eventually helps you live the lifestyle you want. Here’s how to make a plan that can work for you:
Know where you are now
Figure out where you stand right now. What’s holding you back? Are you spending money without thinking? Is lifestyle inflation creeping up on you? What about debt? Are you so busy paying interest that you aren’t making headway?
Get real about your current situation and how it differs from where you want to be. Once you know where you are and understand what you need to change, you can create a spending plan designed to move you in the right direction.
Establish your priorities
Now that you know where you’re headed, decide what’s most important. My list probably looks different from yours. In fact, my list isn’t the same one I started with. When I first made a spending plan, the second item on the list was “debt reduction,” and travel didn’t even make an appearance.
Make sure that the most important items at the top of your list are funded as needed. You can adjust amounts you put toward each priority according to your income, and how important each item is. If you make debt reduction a top priority, you can put more toward it over time.
Stop spending on non-priorities
Once you know what matters most, work on cutting back the rest of your spending.
I narrowed down my priorities to what will help me build the life I want. Future security (retirement), the ability to travel (with the help of a monthly contribution to my travel fund), and contributions to causes I believe in all help me create meaning in my life and help me feel better about the future.
Once I decided to spend money according to my priorities and values, I stopped spending on things that didn’t contribute to my long-term money and life goals — and it wasn’t even hard.
There’s something great about the knowledge that what matters most to you is covered and your money is working for you. My spending plan lets me feel in control since I am directing my financial resources in ways that enrich my life today and in the future.
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