Welcome to Day 2 of 30 Days To Your Financial Freedom Challenge! In the last post, we discussed getting everything together so that you know where you stand. Now we’re going to talk about setting up a spending plan or creating a budget.
Let’s start with the differences between each. Spending plans are useful because they focus on what you have left after meeting your basic needs to improve your life or reach a goal that you’ve set. Budgets are great for people who have moved past living month to month and can now enjoy playing with their money more. But also, it’s just a different mindset, so whether you use a spending plan or a budget doesn’t matter. Choose one or the other.
Is a Spending Plan a better choice for you?
Spending plans are super simple to set up. What you need to know is how much you have coming in, minus your must-have living expenses such as shelter, food, health care, clothing, and business or work needs.
For example, if you work online from home, your automobile may really be a want and not a need. But if you have to have the car to get to work, or you have to use it for health care, or there is no other way to get food where you live, the car becomes a need.
Once you know what you have left after meeting basic needs, you can now use the money you have to help you set up savings, pay off credit card debt, start a new business, or meet other life goals you have, such as learning to ballroom dance.
I have found that spending plans are more useful for single individuals because they don’t need to track expenses from others. You can manage everything from one account and set automatic payments. If you have more complex income or find your spending siutation complicated then you will need to choose to create a budget
How To Set Up Your Budget
To set up a budget, the one recommended by most financial counselors is the 50/20/30 rule or plan. You start the same, list all your income and your expenses, including your wants, needs, and responsibilities, all in one big spreadsheet separated by their categories: Needs, Savings, and Wants.
You can find 50/20/30 rule calculators online to play with too. This one at Nerd Wallet is a good one, but you can set up an MS spreadsheet to work for you too.
The basics of this plan are that half your after-tax money is for necessities, 20 percent is for savings and paying down debt, while the rest, a full 30 percent is for wants. Wants can be defined as expensive clothing, designer makeup, and a fancy car over the basics, as well as playing the stock market. Needs include housing, food, transportation, basic utilities, insurance, childcare, and minimum loan payments. Savings includes investing money in a savings account, stocks, bonds, growing your emergency fund, or paying down debt.
If you want to really dive in to what your neccessities are the you will want to try out the Busting Your Money Mindset workbook. Despite the name it doesn’t just cover mindset or even abundance thinking. It is a full exercise to see where you are in your financial situation and helps you get on track to what your true financial goals are. Most importantly, it sets a plan of action that you can start immediately.
If you have already started to sum up your financials don’t be discouraged on your numbers. Now you can set up a financial plan that fits your needs. Have you set up a spending plan or budget? Please leave any comment or questions below!
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