Sara Weiser – PSECU Public Relations Manager
As you work to build a solid financial foundation, having a spending plan in place is one of the most basic keys to your success.
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Simply stated, a spending plan is a guide that you create for yourself that determines how you’ll spend your money. If used properly, a spending plan will help you to see where your money management strengths and weaknesses are – you can identify what is going well for you and where you are overspending or wasting money.
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Before you can create a spending plan, it’s important that you be honest with yourself. You need to truthfully list all of your income and expenses. Many individuals overestimate their income and underestimate their expenses, which can lead to a spending plan failing before you have even begun to implement it.
When considering your income, make sure you’re looking at the net pay that you take home after any taxes and deductions are taken out of your check. When considering your expenses, make sure you are being realistic in how much you spend. Don’t just think about bills, loan payments or other fixed expenses. To get a true picture of your expenses, consider all items that add to your cost of living.
Now add in the “fun” money that you spend. That means adding up every time you go grocery shopping or fill your gas tank, as well as every time you slide your debit card to buy a cup of coffee or a slice of pizza. If you’re struggling to come up with a realistic number for how much you spend, look back at your accounts for the past couple of months. Add up the average monthly cost of groceries and gas, then look at how much you typically spend on coffee, pizza and other non-essentials.
Once you have your total income and total expenses calculated, subtract your expenses from your income and see what you get. If it’s a negative number, you have some work to do on adjusting your spending to create a spending plan that will keep you from going into debt. If it’s a positive number, you should still take some time to look and see where you can improve your spending habits and pursue opportunities to build savings.
As you’re looking for ways to reduce your spending, think about balancing your needs with your wants. Yes, everyone needs to eat, but you don’t need to eat at a restaurant or grab takeout every night. Using your meal plan, if you have one, or going grocery shopping and making your own meals can save you an incredible amount of money. If you’re someone who needs coffee to function, consider making your own coffee at home rather than purchasing one or more cups out each day.
Keep in mind that your spending plan isn’t a once and done thing. You need to put some effort into making sure you’re staying on track. Online and mobile banking apps can make it easier – there’s no substitute for working the numbers yourself. Whether you prefer paper and pen or using an electronic spreadsheet, manually entering each time you spend money will help you realize just how much you’re spending unnecessarily. What you’re not spending, you can put toward savings. You’ll be pleasantly surprised by how quickly your savings can build up!
The content provided in this article is for informational purposes only. Nothing stated is to be construed as financial or legal advice. PSECU recommends that you seek the advice of a qualified financial, tax, legal or other professional, if you have questions.