Planning where to spend your money helps you avoid overspending. A person usually creates a spending plan whenever there is a financial goal needing to be achieved. Whether you’re trying to save money for a retirement plan or doing your best to pay off a debt as fast as possible, reaching your financial goal is easier when you figure out how to wisely spend your money instead of just accepting the thought that “money comes and goes.” Start planning your spending plan by following these simple steps:
- Determine monthly income
Get the total amount of all your constant streams of income each month minus the taxes.
- Calculate monthly expenses
Sum up all your monthly bills and other expenses that you pay for each month. This includes utilities (water, electricity, landline, internet, cable, and natural gas), rent or mortgage, cell phone bills, car fuel, insurance, and an estimate of how much money you spend monthly on eating out, hobbies, etc.
- Subtract your expenses from your income
If the remaining amount is close to zero or worse, a negative number, it’s time to look back at the expenses and see which ones you could eliminate. Cutting back on the non-essentials such as your hobbies, eating out every Sunday, or perhaps your cable subscription can significantly reduce your expenses.
- Take your financial goals into account
Think about your financial goal. How long do you need to save up for it and how much do you need? Calculate how much your monthly savings should be in order to achieve this goal.
- Compare your expenses to your financial goal
Once you have finished outlining your income, goals, and expenses, you can then assess whether you still need to cut down on your expenses or make some other adjustments to reach your financial goal.
- Review your spending plan regularly
Depending on the circumstances that you’ll face throughout the year, your spending plan might have to be adjusted to fit your needs. So make sure you review it regularly and check if you’re still on track to achieving your financial goals.
Planning how you spend your money is easy but putting your plan into action is a different matter. If you fail to stick with your plan the first time, don’t stop trying. Set your eyes on your goal and do your best to continue carrying out what you planned.