To be in control of your money, you should have a plan for what you spend. This allows you to give each pound you make a purpose. Although this may seem like a lot of work, it is key to lasting financial success.
A good spending plan will help you take each financial step as it comes. It should not restrict you. The idea is to reduce surprises and still have spare cash for the unexpected.
Whether you use a spreadsheet, a pen and paper, or an app, the most important thing to do is start. If you find you do not like one, try another. To make this work, you should review the plan monthly as well as annually.
Start tracking what is coming in and what is going out
“Money in” is your total income. “Money out” falls into two categories.
The first category is essential costs. These are unavoidable things like council tax, utility bills, food, drink, and clothing. Include regular savings in this category too.
The second is everything else. These may go up and down more because they may not happen monthly, and the amounts can vary. Eating out, entertainment, holidays, birthday gifts are all examples of these.
Look back at what spending makes your life better
Now you know what you spend your money on, ask yourself which of these expenses enhances your life. If something does not, you should consider ways of reducing it.
The point of a spending plan is not to deny yourself dinners out or designer clothes if they are important to you. It is to begin expecting these costs and to make money available for them.
Adjust the plan going forward
Planning spending helps you be more mindful whenever you spend money. You may realize you did not plan to spend money on something. You may find there are things which cause you to spend money on things you did not enjoy.
Creating a spending plan helps put your money towards whatever makes your life better. This is much better than letting money push you around.