Using a Spending Plan to Manage Your Money

budgeting Aug 12, 2020

Budgeting and spending is always evolving, so having a plan in place to manage your money is a very powerful tool. A spending plan allows you to pivot quickly and make changes on a dime should things suddenly go awry (or, on the flip side, you find yourself with a windfall of good fortune).

Having a plan that gives you a quick overview of what’s coming in and how much you can allocate to spend in which categories will make money management stress-free. As a bonus, when you look at it more often, you can start to spend less time “dealing with” your finances and feeling guilty for treating yourself to a fancy coffee because it’s been a hell of a week and you want to feel good for a moment.

The reality is that when you stop avoiding your finances, you no longer have to fear them and blow it up into a more challenging situation than it really is. A spending plan is simply an evolving relationship with your money and a guide to direct your spending. It will be your best money friend the longer you use it, I promise. Here’s my guide to the benefits of using a spending plan to manage your money.

Benefits of a Spending Plan

First, let’s get some terminology down. When I say spending plan, I’m not asking you to learn a new system or download some app that isn’t right for you (although if you do want to manage your money with an app, here are 15 options that my clients and I swear by).

All I mean when I say spending plan is budget, though for whatever reason, people associate budget with being in a box. It draws up images of boundaries and restrictions.

The reality is that a spending plan (or a budget) is the furthest thing from being restrictive. If anything, it’s freeing because you know exactly how much you can play with - and it’s up to you if you want to spend more or less somewhere. It’s also flexible and allowed to change as your financial picture does. This is an evolving relationship, not a static set-it-and-forget-it plan. 

A spending plan (or a budget) is just a guide for me. This snapshot lets me assess questions that help me make wise financial decisions like: What is my income? What are my expenses? Does that purchase align with my values?

Above all, being prepared with this plan allows my family to adjust our spending categories without stress. Say we want to save for a trip or have a month where income is low. We can easily see where we can pause on spending or allocate more funds to a certain area of our financial life. If my husband gets a raise or I work with another client, we can factor in taxes, see what’s left, and distribute it to categories where it would make the most impact.

Now that we’re clear on the terminology and general benefits, let’s get into some specific ways a spending plan will help you manage your money so you can make strong financial decisions.

A Clear Picture of your Financial Life

How many times have you gotten an email saying, “Your credit card has expired, please update it!” for a subscription you didn’t realize you had? When you do the initial set up of your spending plan, you’ll finally have a clear picture of exactly where (and where to!) your money is going. I’ll bet you’ll probably start to save some money right off the bat because you’ll easily see any duplicate services or ones that are no longer needed and cancel them.

You’ll also have a list of all your auto-pay accounts, so if you do need to pull back in a spending category, you can quickly assess which subscriptions you want to pause or remove.

Further, the biggest factor in determining and improving your score is on-time payment. So, now that you’re organized and have your due dates marked on your spending plan, your credit score will likely increase.

Values-Based Spending

Your money should be focused on creating a life that you value and having a solid spending plan will allow you to live a life in line with your values and goals.

For example, if you want travel to be a big part of your life, it should be part of your budget. Or if you say you value supporting women-owned businesses, you can look at your spending habits to see if you’re actually living up to that value and either A) continue to support those companies or B) pivot your spending away from companies that don’t align and seek out ones that do.

I always say if you want to know what an institution values, look at what they put money toward. Your household is no different. 

Emergency Planning

For many people, family financial security is a big reason to have a budget or spending plan in the first place. As such, emergency funds come up with lots of my clients. Like values-based spending, if that’s really important to you, your emergency category has to be funded first before you spend your income on anything else. 

Instead of spending your money on everything under the sun and putting whatever is leftover into your emergency fund, a spending plan will tell you exactly what you can allocate to which category so you can fund what is important to you.

Another aspect of emergency planning is having a safety net with a few month’s expenses saved. Since you know your exact numbers, you will have a concrete target that you must keep in your emergency fund at all times.

Flexibility in Money Management

Because a spending plan is just a guide, there is a good deal of flexibility within that container. You can create a system that works for you or try a few until you find one that you love. This is your budget and your life, use what works for you!

For example, I love planning with Excel spreadsheets, but some of my clients prefer pen-and-paper, so I created a binder for them with trackers and guides so all they have to do is print it and go.

And, even though I love digital solutions, my personal system is to use cash at the grocery store. It’s the only time I do and that’s how it works for me to manage that particular expense for us. If I walk in with $150 in my pocket, I won’t walk out with $200-worth of groceries! I took part of the envelope system that worked for me and combined it with my digital system to create a management plan that keeps me on track.
At the end of the day, a spending plan guides you to make financial choices that work best for you and your financial goals. If you know what you have before you swipe that card or open an envelope, you can make purchases with clarity and joy instead of being worried about the bill. Further, you’re able to adjust your spending plan much more rapidly if you need to and meet your goals with ease.  To see what I include in my spending plan, check out this post!

Stop living paycheck-to-paycheck and enjoy financial freedom.

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