Take control of your finances with a spending plan

A spending plan is a money management tool that can help you understand where your money goes — and how to make choices that support your financial goals. Also known as a budget, a spending plan can provide clarity around your priorities by showing you what’s possible with the money you have.

The best part is, it doesn’t have to be complicated — even a basic spending plan can help you have more control and feel calmer and more secure when it comes to managing your money. Here are some simple steps for building your plan.

3 key elements of a successful spending plan

A good spending plan starts with three important details:

1. Knowing your income. Do you have steady, consistent pay every month? Or does your income change each month? And how many sources of income do you have? A spending plan starts with understanding how much money you take home (net pay) so you can decide what to do with that money after you earn it.

If your pay varies month to month, use an average to get started (add up your total income for the past three months, divide that number by three, and use the result). This gives you a good starting point, and you can adjust your plan as needed.

2. Understanding your expenses. Knowing where your money goes gives you the power to make choices. Food, housing, transportation, health-related costs, and debt payments are a few examples of the biggest and most important expenses that most of us pay for each month. List all your monthly expenses and then rank them in order of priority to determine how to split your income across them. You can also categorize them by needs versus wants.

Types of expenses:

• Fixed expenses are the same each month, making them more predictable. They often include necessities like rent.
• Flexible expenses can include necessities whose costs vary each month, like your groceries or utilities.
• Discretionary expenses cover anything you spend money on that you don’t necessarily need, like going to a concert.

3. Tracking your spending. If you know where every dollar you spend goes, it may help you spend smarter and save money. Tracking your expenses helps you find out if you’ve been spending too much on lower financial priorities (like entertainment) when you could be focusing on things like rent, bills, or your longer-term goals.

Some people use apps to help track their spending, but it can be as simple as listing your expenses on paper, in a note on your phone, or in a spreadsheet — just find a way that works for you.

A step-by-step guide to creating your first spending plan

Ready to build your first spending plan? Use paper, a spreadsheet, or a note on your phone and try these steps:

Step 1: Enter or write down your average monthly income.

Step 2: Make a list of all the expenses you spend money on each month, like bills and entertainment.

Step 3: Next to your expenses, put how much you spend — or want to spend — on each of them. This helps you see where you can free up money for savings. (Some expenses, like rent, may be the same each month. Others, like groceries, may change based on your needs.)

Step 4: Add up your expenses. Is the total less than your income? If so, before increasing any spending categories, consider paying yourself first by setting aside money for savings. Is the total more than your income? If so, try making some adjustments.

Ways to cut back on spending

Reducing your expenses could help you meet your financial goals — and it doesn’t have to be hard. Here are some simple tweaks you could make based on different spending categories:

Food

• Reserve restaurant spending for special occasions or maybe just once a week as a treat.
• Have a meal plan in mind when you make a shopping list to help limit spending — and try to plan meals based on sales, coupons, or generally inexpensive ingredients.
• Consider buying certain products in bulk when you can or choosing generic and store brands over premium brands.
• If you have kids in school, find out if your family qualifies for free or reduced-price school meals.

Transportation

• Consider options like public transportation or carpooling.
• If your area is walkable, try walking or biking on days when the weather is nice.
• Decide if your household could get by with just one vehicle and sell any that you don’t need.

Entertainment

• Trim streaming services down to the ones you use most often. You can always switch to another service when you run out of things to watch.
• Explore low-cost providers or package deals to make streaming and other entertainment more affordable.
• Try borrowing movies, music, and books from your local library for free.
• Look for online discounts at your favorite places or free local events to make outings more affordable.

Quick tips for making the most of your spending plan

Now that you have a spending plan, you can use it to help guide your decisions about money. Here are a few pointers to help you make your spending plan work for you.

Continue to track your expenses: Pick a day of the week or month to look at your spending on a regular basis. This can help you spot opportunities for smarter spending or future adjustments in your plan. And keep at it; consistency can help turn the action into a habit.

Set goals according to your priorities: What’s your motivation for starting a spending plan? It could be as simple as saving a little extra every week, or it could be as ambitious as becoming completely debt-free. Goals are personal, and there’s no right answer. What matters is a plan that reflects what’s important to you.

Here are examples of goals that your spending plan could help you achieve. Your goals might be different, but what’s important is that they have real meaning for you:

• Saving for emergencies
• Paying off debt (credit cards, loans, etc.)
• Buying a home
• Paying for college

Revisit your spending plan regularly: Your financial priorities will likely shift over time. That’s normal. You can always adjust your spending plan to help you reach your goals.

Make trade-offs when necessary: Everyone makes trade-offs as part of maintaining a spending plan. Choosing what matters most puts you in control. It might mean adjusting your spending to help you prioritize what’s most valuable to you.

The key is to start — and to remember that progress matters more than perfection with your spending plan. Every step you take toward clarity and confidence is a win. Keep it up — you’re building habits that can help you along the path to lasting financial freedom.