In our January blog post, we helped you to identify your money goals using our financial wellness wheel so that you can have a financially successful 2022. In February, we talked about the importance of designing an action plan to help you achieve your goals one step at a time. In this month’s blog, we focus on creating your spending plan.
The word ‘budgeting’ often generates feelings of trepidation and negativity. Many view it as a practice requiring too much effort and so avoiding it all together just makes life simpler. When interpreted incorrectly, budgeting can appear to be controlling when in fact it is you that controls the budget. Reframing our beliefs, thoughts, and feelings about certain tasks in a positive light improves our ability to remain committed to the task at hand.
Replace ‘Draw up a budget’ with ‘Create a spending plan’ which has a bit more excitement to the process. A spending plan is where you tell your money where you want it to go. And the idea is to get to a zero-sum after deducting your expenses from your income.
To create your spending plan, you will need your bank statements and any other documents that reflect your expenses, or debt owed. Using a spreadsheet, notebook, or the workbook available in our “FOUR STEPS TO FINANCIAL WELLNESS” course, you can create your spending plan. This typically will show you income and expenses for each month. You can include columns for planned spending and actual spend.
If you need more clarity on exactly where your money is going, a good way of identifying spending habits or trends is to keep a money journal. Again, this tool is available on our learning platform when you sign up for our “FOUR STEPS TO FINANCIAL WELLNESS’ course. A money journal is a tool you can use to keep track, of every single cent spent and earned. We recommend conducting this exercise for a minimum of 30 days. If you complete it for 3 months, you will have better insight into your spending trends. At the end of the period, tally up expenses according to certain categories. For example, amounts spent for eating out, groceries, entertainment, petrol, or transport. Once you have these categories you can further identify these as NEEDS or WANTS. You will then be able to allocate reasonable values to the planned amounts you want to spend. This data will also help you to reduce or eliminate unnecessary or exorbitant amounts spent on expenses that have been identified as WANTS. Any surplus funds freed up can then be used towards the financial goals you have already identified or can also be used towards paying off debt. If you are still finding it difficult to manage your expenses and live within your means, the next step is to consider ways in which you can increase your income or review expenses that have been identified as NEEDS.
It is valuable to mention this: “You cannot live the same year 75 times and call it a life” – Robin Sharma. If you want to change an outcome, then you need to change your behavior. If you want different results, then you need to take different actions. By creating a spending plan and sticking to it, you are one step closer to achieving your financial goals.