What Is a Personal Spending Plan?

A spending plan is an informal document used to determine the cash flow of an individual or household. A personal spending plan, similar to one's budget, helps outline where income is earned and where expenses are incurred.

When paired with a financial goals worksheet, the personal spending plan can be used to create a roadmap for monitoring spending, as well as helping determine the most appropriate methods for saving.

Key Takeaways

  • A personal spending plan is a modification of a personal budget, indicating sources of income along with outflows, identifying patterns of spending, and highlighting needs vs. wants.
  • Instead of viewing the plan as restrictive, think about the things it allows you to buy and how you will spend your money.
  • Adopting a personal spending plan as part of an overall financial plan is a good way to take control of your spending, live within your means, and, ultimately, reach your financial goals.

Understanding Personal Spending Plans

A personal spending plan is a more individualized and flexible take on the traditional budget. While many people may be familiar with their sources of income, such as a salary from a job, fewer know the patterns that may be associated with where that income is spent. A family may want to integrate a household spending plan in order to track what each member of the family spends and find ways to save or budget funds.

The personal spending plan is often more detailed than a standard budget because it requires more information about each item. By documenting and categorizing all sources of spending, individuals and families can better understand whether funds are being spent on items that detract from their ability to save for and reach their financial goals.

Making Financial Goals with a Spending Plan

Financial goals are integral to making a personal spending plan work. Financial goals, such as saving money for a vacation, or buying a new home, help individuals determine how much money should be diverted from living expenses into savings and investing.

It is not necessary to use a financial planner to make a spending plan, it can be as simple as using a shareable spreadsheet or online money tracker. Reporting all spending is necessary to keep an accurate and detailed account of each category of spending, like groceries, school-related fees, or entertainment.

Some experts recommend that families or single-person households spend a month or two recording all their expenditures before embarking on a spending plan. In doing so, it is likely possible to make realistic financial goals, when it comes time to implement a spending plan.

Create Your Personal Spending Plan

Nearly everyone wishes to have more money at some point. That said, all but the wealthiest among us are essentially living on a fixed income based on our labor income each week or month. In other words, you bring in a certain amount of money each pay period, and when it's gone, it's gone. Accepting that reality is the key to living a happier, wealthier life. Keep in mind that your creditors don't work for free, so spending money that you don't have is also incredibly expensive.

Fortunately, getting your finances on track isn't that difficult. While there are spreadsheets and software programs designed to make the budgeting process faster and easier, all you really need is a piece of paper, a pencil, and the desire to live within (or even below) your means. The example below will help you get started.

Monthly Expenses Cost
Rent ?
Insurance ?
Transportation ?
Utilities ?
Food ?
Entertainment ?
Clothes ?
Emergency Fund ?

As a general rule, you should also plan to set aside enough money to cover at least three months' worth of your expenses in case of an emergency. Once that money is put away, you won't need to rely on your credit cards should you lose your job or experience unforeseen expenses. Like every other recurring item in your personal spending plan, the emergency fund is something you fund one month at a time until you reach your goal.