How to Create a Spending Plan You'll Stick To

Why is personal finance important? With rising prices, inflation has made it more important than ever to figure out how to keep your expenses from outpacing your income. Surveys in 2023 report that 70% of Americans are stressed about their finances,¹ and 57% would be unable to handle an emergency expense of $1,000.²

Even if you’re someone who lives below their means, tracking your dollars and cents is the first step in building a personal financial plan that can provide security and help you meet your life goals. 

Let’s take a look at how to set up—and stick with—a personal spending plan. 

What Is a Spending Plan?

Do you know exactly how much money is coming in and going out each month? A financial spending plan is a tool that enables you to understand your income and monthly expenses so you can make smarter financial decisions with your money. 

Along with setting goals—such as creating an emergency fund, saving for a house downpayment, improving your credit score, or paying off credit card debt—a spending plan is an important part of personal financial management. Over time, you can use it to:

• Track your spending habits
• Prioritize spending needs over wants 
• Identify tips on how to save money
• Help you build wealth over time

How to Create a Spending Plan

Spending plans typically look at one month at a time, and allow you to compare activity month to month and calculate annual totals throughout the fiscal year. You can set up a spending plan using a spreadsheet template, a budgeting app, or personal finance software.

The three key components of your monthly spending plan are: 

1. All income sources (typically showing net income or take-home pay) and a monthly total
2. All expenditures displayed in ongoing categories with a monthly total
3. A calculation displaying which category is larger (income or expenses) and by how much

To get started, you need to sign into your accounts or gather paperwork including: 

• Bank statements
• Paychecks 
• Income from benefits, child support, dividends, etc.
• Credit cards and loan balances and payments
• Mortgage or rent
• Utility accounts
• Internet, mobile, and other communication-related accounts
• Insurance, investment, and other monthly financial costs or allocations
• Healthcare out-of-pocket costs
• Receipts or other records tracking cash spending

Tips to Keep Your Budget User-Friendly

A spending plan is only useful if it’s kept up to date and reviewed frequently, but using your time on something you find complicated or boring can be a challenge. Consider these tips to help you stay on top of your plan: 

• Automate your data – Look for opportunities to automate incoming data from your credit union, bank, credit card providers, and other sources. This may be through connecting your account information to an app or software, or routinely downloading .csv files that can be uploaded to your plan. 

• Use the right tool – Choose a tool that’s most accessible to you. For many people, that’s a budgeting app available on a smartphone. You’ll want the easiest route to keeping your plan updated with each incidence of outgoing and incoming cash for your monthly budget.

• Customize your spending plan – Set up and name categories so they make sense and fit your spending habits. For instance, you may want a category that tracks expenses related to a specific hobby, or break down clothing costs to each person in a family. Consider what information would be helpful to review on a monthly or annual basis so you understand exactly how money is being used.

• Use trackable payments – If your credit cards are paid off, and you can pay them in full monthly, it can be helpful to use them routinely to track exactly where and when money is spent. If you can’t consistently pay off monthly credit bills, however, do not use this method.

• Automate payments – Avoid late fees, interest charges, and overdraft penalties at all costs. Include monthly due dates for each ongoing expense on your spending plan If you’re living paycheck to paycheck, set up calendar reminders to pay bills before they’re due. If you’re not at risk of overdrafts, use automatic payment functions for ongoing bills. 

Home Equity Can Boost Your Bottom Line

A spending plan is a key part of personal financial planning, along with understanding your assets and how to make them work for you. If you’re a homeowner, you may be sitting on more home equity than you realize—and it can be a source of wealth-building while you continue living in your home. 

With their sale-leaseback, Truehold buys your property and then leases it back to you at an agreed-upon rent. You stay in your current home as a renter as long as you choose, with no more property tax, homeowners insurance, mortgage payments, or responsibility for major repairs and maintenance. 

To learn more about cashing out all of your home equity without moving, reach out today. One of our advisors will discuss the process and see if Truehold's sale-leaseback is a good fit for you.

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Sources: 

1. CNBC. 60% of Americans are still living paycheck to paycheck as inflation hits workers’ wages. https://www.cnbc.com/2023/09/27/60percent-of-americans-are-still-living-paycheck-to-paycheck.html‍
2. Fortune Recommends. 57% of Americans can’t afford a $1,000 emergency expense, says new report. A look at why Americans are saving less and how you can boost your emergency fund. https://fortune.com/recommends/banking/57-percent-of-americans-cant-afford-a-1000-emergency-expense/