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.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|