Spending Plans: A Better Way to Budget
You're trying to save money, so you cut out that daily latte you love so much. Right? Wrong. You can find plenty of people willing to offer advice about how to live within your means. But the real secret to wrangling your budget is to live by your unique value system. That’s what this course will help you do: Identify the types of purchases that give you the most happiness, and arm you with tactics for bringing your spending in line with what matters most to you. Before beginning this course, it's helpful (though not necessary) to have some financial information handy, like monthly income, expenses, credit card statements, and your credit score. So you might want to have what you can nearby before we get started. (Don’t panic; we’ll help you do this!).
What you'll learn
- Get tips for making sure you're really spending on what matters to you.
- Understand how to become more aware of your spending habits (and a few strategies to improve them).
- Learn a whole different way of looking at your money.
Society of Grownups Resources
- Read more on our blog about Society of Grownups’ take on spending and savings in our library.
- Level Money will help you track your spending and show you how much fun money you have left for the day, week, and month.
- Mint is another spending tracker, but this one comes along with a lot more detail. I spent, how much, at Starbucks this week?!
- Didn't use a credit or debit card to pay? Track your cash transactions in one place with Spendee.
- Dollarbird is a convenient calendar-based app to track your spending.
Welcome to Society of Grownups. My name is Rachel Rabinovich. I'm a certified financial planner on the team here.
At Society of Grownups, we consider ourselves a kind of master's program for adulthood. It's the type of place where people can come to learn all sorts of grownup things, like how to manage finances, appreciate good wine, save for retirement, and negotiate salaries. But most of all, we encourage people to keep their values in mind along the way.
Today, we're going to focus on helping you figure out where you're spending your money and how you can make it work for you so that you can live life on your own terms.
Since I don't know your personal situation, this class should be considered purely educational. It's not tax, legal, or advice, and might not apply to your particular circumstances. If you feel like you have some specific issues you'd like to have addressed, I encourage you to make an appointment with a financial planner. I may reference some third-party websites and resources. We picked those that we like best, but we cannot be guaranteed of their accuracy. You'll also see an attachment included with this video. Hopefully, you've been able to print it out. But if not, hopefully, you can follow along and use a notepad to keep up with the exercises.
Occasionally, we will pause the video so you can complete the exercises. And then when you're done, you can restart.
My goal today is to help you get a better understanding of your priorities and some insight into what you're already spending your money on. We'll give you some tools so that you can start to create a spending plan that works for you and your personal situation. And we'll talk about some tips to help keep your spending in line with your goals and priorities.
So there's really no normal when it comes to managing your money. No matter what your life stage is or what your personal circumstances are. It can be really tough to manage your finances and to create good habits that stick. But to be able to do so, first you need to understand what's important to you before you can commit to where you're going to put your money. Managing your cash flow is the beginning of building a secure financial foundation for yourself now and in the future.
So what are your priorities?
Have you ever really given it much thought? Before you can figure out where you want your money to go, you have to think about what's important to you. Who are you? What matters to you? And what you want for yourself financially now, and in a few years, and later on down the line. Maybe you want to fund that dream vacation or go back to school or buy a house. So I'd like you to take a few moments and think about the things that you would like to spend your money on. What are your goals? We're going to pause the video for a couple of moments to give you some time to think about that. Remember, these are the things that are important to plan for.
So for myself, the small priorities are that I like to eat out. I like to buy clothes, take small trips, and do small projects around my house. Some of my bigger priorities are to take some large overseas trips, renovate my kitchen, and save for retirement.
So now that we know where you want to go, we have to figure out where you are now. What are the things that you're currently spending your money on? Again, I'd like you to take a few moments and jot down the five top places that your money goes to now and estimate how much you spend on each, whether that's weekly or monthly-- whatever works for you.
So now that you've had a chance to go through this, do you feel like you're deliberate about your spending? Or do you feel like your money's just going out the window? And does this line up with your priorities? When I went through this task, I found that most of my money goes to housing expenses. And I was really surprised to see how much I spend on food and heating oil. But the fact that I live outside of Boston really shouldn't surprise me when it comes to my heating expenses.
I am not going to stand here and tell you how to spend your money. I'm not going to tell you that you need to spend a certain amount on groceries each month, or a certain amount of clothes, and that you have to cut out all the fun things in your life. That is not how life works. But what I would like to propose is a spending plan.
A spending plan allows for control and flexibility in how you spend your money. You decide what your needs are-- which are essentially the things that you need to keep your life going-- and then you fund those goals or priorities like the ones you just wrote down. You treat them as expenses. And they get funded right along with the rest of your bills. And then you know that what you have left over, you can spend as you see fit. You have the flexibility and control. And now you know that you can live within your means and that you'll still have money leftover.
Now that we know where you are and where you want to go, let's look at how much money you're working with. How much available cash do you have on a monthly, or bi-weekly, or weekly basis? Take a moment again, and jot down on the worksheet what these numbers are.
Now, if you have a variable or unpredictable income, you might not really have been able to do this section. We might need to go through and figure out what your expenses are first and then back into figuring out how much you need to cover them. If the number is unreasonable, then we'll need to accommodate for that.
So now let's talk about where you're going to spend this available cash. Consider this tactic-- bucket your income into three different categories-- your needs, your priorities, and your wants. Essentially, that's what it all comes down to. You'll see three categories listed out on the worksheet. And we're going to take a few moments. And we're going to jot these things down. Let's start with the needs first. Like I said before, needs are the things that you must pay for to keep your life going. This could be your housing expenses, your transportation expenses, groceries, your student loans, or your credit card debts-- just the important things that have to be paid each month. So take a moment, and write those down.
So calculate what percentage of your income you need to allocate to your needs. If it's 100%, then you're going to need to make some adjustments. But remember, the higher this number is, the less you have to spend on your priorities and the things that you want to do that are fun.
So I've always recommended taking a portion of your income, no matter how large or small, and paying yourself. What I mean is, take the things that are priorities to you that you want to fund and plan for them in your spending plan so they become bills, just like all your other essential expenses. And once you've been able to figure that out, then you can move on to spend your money on the fun things that you want. So let's take a moment again. And let's jot down the things that you want to fund-- your priorities.
So now after taking care of your needs and your priorities, with whatever is leftover, you can spend it any way you want to spend it. That could be going out to dinner or drinks, buying clothes, whatever you want to do. The idea here is that you have the control and the flexibility to spend your discretionary income any way that you want to spend. So let's take a moment again. We're going to pause. And jot down the things that you want to be able to do.
So now, remember how I was talking about variable or unpredictable incomes? So any income that you do get will need to cover your needs first. And then anything leftover, use to cover your priorities and your wants.
So there are a number of methods to keep yourself on track. You can use a spending app, a spreadsheet, or pen and paper-- whatever is going to work for you. There are some different kinds of apps out there. mint.com is very detailed. Dollarbird is great for calendar-based tracking. And Spendee is great for cash transactions. It doesn't really matter what method you use. Just find one that works for you and stick with it.
I have other clients who move most of their money into savings accounts that they nickname, like "fund money" or "travel". And then when they want to spend, they actually deliberately have to move money from savings back over to checking. The idea is to create a way to help yourself control your spending.
Also, try to get some help from a friend. Having a partner who shares a similar goal can be really powerful in keeping you on track. And it's not about comparing yourself to somebody else or being in competition. But being accountable to somebody else can keep you motivated and can keep your spirits up. And it's also a way of kicking you in the butt if you get off track.
Finally, use credit cards wisely. If you think you're the type of person that's going to overspend and max out your credit card, you might want to skip it. But if you think you can spend responsibly and then pay it off each month, credit card can be a great way to manage your spending and to build a good credit history. But again, you have to be honest with yourself. So whether you find ways to distract yourself, or use external controls, or help from a friend, use whatever tool makes the most sense for you so that you can be conscious about where you spend your money.
So I really hope this class was helpful to you today in thinking about where your money is going and how you can use it so that you can live life on your own terms. Please check out our Grownup Blog on The Society of Grownups' website and look at the tools and resources on the worksheet. I want to thank you, today, for attending our class.