Last Updated on January 3, 2021 by admin
What should you have: financial plan vs budget?Knowing the difference between a “spending plan vs budget” is crucial to the success of your finances in the long run.
The first step you need to take before you create a spending plan or a budget is to know exactly where you stand right now financially.
In our last post about finances, I went into great detail about ways to get everything you need in order to properly evaluate where you stand financially.
It’s essential that you have the big picture of what you owe, what you have, and your overall financial situation.
This is extremely important if your goal is to better have control of your money.
Today, I really want to focus on some of the best tips you can use for setting up a spending plan or creating a budget that works.
Spending Plan vs Budget – which one will you go with to ensure your money is better managed?
So what is a spending plan anyway?Before we get into that, I want you to work on an overall financial plan that will protect you no matter your circumstances.
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If you are ready to learn more about:
The benefits of creating a spending planSetting up a spending plan that worksAnd a spending plan exampleThen let’s get into it now.
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What is the difference between a spending plan and a budget?To keep it simple, a spending plan is simply a money-management way of spending money if absolutely necessary and then saving the rest.
A spending plan is a helpful way to track your monthly budget as well.
It allows you to choose what you absolutely must spend money on each month (for example essentials), and it gives you the freedom to spend money on whatever you want out of the balance.
Let’s say you were making $3000 a month.
Out of that $3000, half of that would go to ensure your essentials are paid, your bills and credit cards are paid.
And anything remaining is yours to spend how you wish.
Whereas a budget requires you to stick to what you assigned that dollar figure to.
It’s a fancier way of budgeting without all the restrictions that come with budgeting.
Creating A Spending PlanSpending plans are super simple to set up.
What you need to know is how much you have coming in, minus your must-have living expenses such as shelter, food, health care, clothing, and business or work needs.
For example, if you work online from home, your car would typically fall under a want and not a need.
But if you have to have the car to get to and from work, or you have to use it for health care, or even to simply do groceries, then this car is now considered a need.
Once you know what you have left after meeting basic needs, you can now use the money you have to help you set up savings, pay off credit card debt, start a new business, or meet other life goals you have, such as learning to ballroom dance.
I would suggest grabbing your very own FREE spending tracker today.
Setting Up Your Budget for beginnersA budget is basically a plan you create for yourself which details out exactly how you will spend your money from month to month.
To set up a budget, you need to really know how much you make vs how much you spend each month to survive.
The most recommended budget system by most financial people is going with the 50/20/30 rule or plan.
If you are a beginner and you have no idea where to start, I suggest reading these two posts:
The benefit of budgeting your money so you become financially freeThe best budget planner for beginners to help you better budgetIf you are going to start a budget, I really recommend you go with the 50/20/30 budgeting rule.
You start the same as you would if you went with a spending plan, list all your income and your expenses, including your wants, needs, and responsibilities, all in one big spreadsheet separated by their categories: Needs, Savings, and Wants.
You can find 50/20/30 rule calculators online to play with too if that makes it easier for you.
This one at Nerd Wallet is a good one, but you can set up an MS spreadsheet to work for you too.
Basically, what this budget system entails is that list down your take-home income which should be spent on necessities, 20% should be put into savings or towards paying off debt, and the remaining 30 percent is for your wants.
Your wants are basically anything you want to spend your money on such as make-up, buying a fancy phone, or even simply clothing.
And your needs include everything you need to survive such as housing, food, transportation, basic utilities, insurance, childcare, and minimum loan payments.
Savings includes investing money in a savings account, stocks, bonds, growing your emergency fund, or paying down debt.
If you want a more traditional budget to plan it all out, you can use my free budget planner!
You can also use budget planners for beginners like these ones to help you better define your budget or free monthly budget templates like these so you can budget your money right away.
Whatever you use, make sure you stick to your budget if you really want things to work out financially.
So after all of that, which one is better?
Spending Plan vs BudgetPersonally, I would do a spending planner as it is more logical for me.
Spending plans are useful because they focus on what you have left after meeting your basic needs to improve your life or reach a goal that you have set.
Budgets are great for people who have moved past living month to month and can now enjoy playing with their money more.
But also, it’s just a different mindset, so whether you use a spending plan or a budget doesn’t matter.
Choose one or the other.
The point is to make it work for your financial needs right now.
Spending Plan TemplateHere is a copy of a spending plan printable you can use to organize your money.
Go ahead and grab your very own FREE spending tracker right here.
What are the benefits of a spending plan?As I mentioned earlier, a spending plan is really just a plan you create to help you meet your monthly expenses. Whatever is left you can spend it as you wish.
I would definitely suggest that you save the leftover money so you can prepare for an emergency. But other than that, a spending plan…
Will help you live within your income Will give you better control of your money instead of the money controlling youWill help you see where you are over-spending Will also help you limit spending on things you don’t needA monthly spending plan will definitely help you better organize your finances so you are less stressed!
Which one will you stick to? A Spending Plan or A Strict Budget?Whatever you choose taking the first step for learning how to organize finances is no easy task, but I am so glad that you took the necessary steps to get started.
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Spending Plan vs Budget: Which One Is Better For Your Personal Finances