The New Year brings with it the opportunity to make a fresh start. Reviewing your finances after holiday spending is an important part of that fresh start! Here are some tips to create a more modern and user friendly budget called a spending plan.
What's the Difference Between a Budget and a Spending Plan?
A spending plan is a simpler way toward more intentional spending and saving. For some, the time it takes for the input and monitoring of a monthly budget is a big reason there isn't a household budget. The spending plan helps you to keep track of monthly and annual fixed expenses. It then allows a remainder pool of money for you to spend at your discretion each month. A spending plan also can make it easier for those who have irregular incomes through prioritization. Also, the spending plan places "personal savings" as a monthly expense. This savings "expense" gives you no excuse not to save toward your goals.
A Good Place to Begin Is to Review Your Spending Habits:
- It can help you to get back on track sooner with your spending, after the holidays.
- Assists you with clearly identifying where any overspending is occurring vs. your income.
- You'll know exactly how and where you are spending your money which is often eye-opening.
- The awareness this review can bring allows you to be more intentional with your money.
- Helps you to identify areas where you may increase your savings and pay yourself first.
Review Your Checking Account and Credit Cards:
Review the most recent account statements for checking and credit cards. Look at accounts where you pay bills or spend for discretionary items. Once you've reviewed these statements, you can categorize your spending. For example: Food, Utilities, Rent or Mortgage, Insurance, etc., are each a category to account for in spending. You'll want to take time on this part. And, consider categorizing by fixed spending and discretionary spending. Is there any spending that you might reduce or negate altogether? This part of the process of creating a spending plan is the most time consuming yet the most beneficial.
Yes! So important that it's worth repeating…reviewing spending and properly categorizing your spending can take some time, but it's worth it for the many reasons we've bullet-pointed. Additionally, the peace of mind that you'll have through the awareness surrounding your money is one of the most important reasons for your review. Your peace of mind can reduce stress!
And Finally, Take the Time to Look at Your Investment Accounts:
How are your investments doing? Is the risk you're taking on your money appropriate for your risk tolerance, your stage in life or your goals? How about the performance? Is it in-line with your goals and how hard, or not, you need your money to work for you to reach those goals? This is also a good time to determine if you are saving enough toward your goals. If not, think about where and how you might add more to your savings as a 'fixed expense' within your spending plan.
At Lenity Financial, we know that no matter your stage in life, a spending plan is critical for your financial well-being. If you would like more information about "How to Create a Spending Plan", please email us at email@example.com and request a copy of our White Paper "How to Create a Spending Plan".