A spending plan is a budgeting tool that helps you manage your finances. It supports you in taking back control of your money so that you can meet financial commitments and work on future goals. It can be as simple as writing down income and expenses in a notebook. Or getting really detailed and creating a spreadsheet with a thorough budget breakdown. Whatever way you prefer to create your spending plan these are the 5 reasons why you need one.
1. Get Clarity on Your Income and Expenses
It is important to know how much income you have coming in each month so that you can budget successfully. It can be especially difficult to juggle all your expenses when you have an irregular or sporadic income, for example from self-employed work, so writing this down can help you feel more clarity about your situation.
When it comes to expenses, again, you need to understand where your money is going and ensure that your income covers all your expenditures. A study conducted in partnership with Texas A&M University found that consumers underestimate their future expenses by as much as £75 per week. Keeping track of your expenses will help you to avoid feeling as if money is just evaporating from your bank account.
2. Meet Short Term Goals
Having a clear budget will allow you to meet all your regular expenses, whilst also working towards some of your bigger short-term goals. Short term financial goals may include things such as creating an emergency fund and/or getting a deposit together to buy a house. When you create an intentional spending plan you will be less likely to spend on impulse purchases, which means you will be able to save for the things that you really want.
3. Plan For Long Term Goals
Long term plans such as paying off a mortgage or retiring early are great financial goals to have. Aspirations like this can be achieved when a clear plan is utilised. It can feel more of a challenge to sacrifice money for goals that are so far in the future, so documenting your progress can really keep you on track. Think about how it could feel living in a house you don’t have any payments on!
4. Avoid Debt
Having a budget will help you stick to a spending plan and avoid going into debt. Some people find that they need to use debt to cover essentials when the money runs out at the end of the month, and this can quickly spiral out of control. When you know what your expenses are each month it will minimise any nasty surprises. Read more here.
5. Worry Less about Money
There is no doubt that money worries can affect our health. Debt, rising living costs and not being able to meet financial obligations can put a real strain on our mental health and relationships. When you get clear on exactly how much money you have coming in and where it is going you can feel in control again. You may even find that your situation is better than you expected when you can see things clearly on paper. But even if things don’t quite add up at least you are in a stronger position to move forward as you know exactly what your current situation is. Knowledge is power when it comes to your finances.
This is a collaborative post.