By Pascal Hansen, Financial Expert on Cyno
Creating a spending plan or budget is the most crucial thing to manage your money, however a lot of people are reluctant to do so. I prefer to use the words “spending plan” instead of “budget” because I find it more empowering. It’s about deciding how and where you want to spend your money as opposed to using the word “budget” which feels restrictive, full of rules and frankly does sound like something anyone would want to do. Therefore, I want to highlight 6 benefits of taking the time to create a spending plan in the hopes of inspiring you to get it done instead of procrastinating on it.
A Spending Plan….
#1 Creates Awareness & Helps to Stop Overspending
Spending money without thinking carefully about where it all goes can easily lead you to overspend on a monthly basis, which in turn can lead to out-of-control debt that can take years to clean up and fix. In the meantime it can create a lot of stress which can cause physical and emotional distress or illness and stop you from getting good rates on loans, mortgages and credit. Overspending limits your spending power in the future, as more and more of your income has to be applied to debt payments.
#2 Helps You Reach Your Goals
In order to reach any goal, you need to know where you are now, what to do achieve those goals and how long it will take. Seeing written goals and strategies often motivates people to do more to reach their goals faster. They make the commitment to do it because they can. This is intrinsic motivation that comes from inside of them and not from someone telling them what to do.
#3 Makes It Easier To Save
People who do not have a spending plan tend to save less money than people who do. That's because when you create a spending plan, you assign your money to do certain things. The objective is to know where every dollar is going and what job it has to do.
Once you know what your monthly savings goals are, it’s recommended that you those sums of money automatically transferred into a savings or investment account each month. This makes it less likely that money is spent on anything else that’s not assigned and will make it easier to save.
#4 It Includes Fun Spending
There’s absolutely no point in working hard and not enjoying the things money can buy. You just need to make sure you can afford it, so your entertainment spending is not coming at the cost of being able to retire in the future. When you're creating a spending plan, you decide how much you spend in each category. So if you want to put a significant portion of your money toward leisure activities, you shouldn't feel bad about that, as long as you are still saving and meeting your other needs.
#5 Incorporates Flexibility
A good spending plan allows for some flexibility, because life happens and sometimes you have to spend more in one category than another. Tracking your spending on a weekly basis makes this easier. The only restrictions should be on the automatic savings category not on your discretionary spending category. If your spending plan is too restrictive then it should be adjusted so that managing your cash is easy and not time-consuming.
#6 Puts You in Control
A spending plan can help you gain a feeling of control over your money. It allows you to prioritize your spending, track how you are doing, and realize when you need to make changes. It puts a solid plan into place that is easy to follow and gives you the chance to plan and prepare for the future.
Who needs to have a spending plan?
A spending plan is an important tool for everyone, no matter your income level. It can help anyone work toward financial goals, avoid bad debt, and save for the future.
Don’t know where to start? Let’s talk. I’d be happy to help you get started with your customized spending plan.