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Savings & Spending

How To Create a Spending Plan

Couple going through paperwork

You have probably heard of a budget, but you may be thinking, “What is a spending plan?”

Spending plans are slightly different from traditional budgets. Traditional budgeting is based on cutting expenditures and setting spending limitations, and may create a mindset of sacrifice and restriction. On the other hand, a spending plan is based on prioritizing spending and fostering a sense of responsible, purposeful spending. Every dollar is valuable, and you can decide where your dollars go. A spending plan can help you secure your financial future.

Create your own in a few simple steps.

Step 1: Determine your income

Income is money you regularly receive from an ongoing source, such as a paycheck, alimony, government assistance, or dividends. Having a clear picture of your income is ideal. Start by gathering your pay stubs and other documents showing how much money you earn from other sources.

Step 2: Evaluate your expenses

Locate your most recent checking account and credit card statements to see what you typically spend monthly. Include rent, loan payments, insurance, groceries, small purchases such as coffee or snacks, financial institution or credit card fees, and other purchases.

One by one, look at every item that took money out of your account and put it in one of these three columns: fixed, variable, or periodic.


Monthly recurring expenses that are expected to stay the same for a year or more:

  • Rent or mortgage
  • Loan payments (car, student, and credit card)
  • Insurance (homeowners and renters)
  • Childcare
  • Savings (emergency and retirement)


Monthly recurring expenses but the amount may change:

  • Utility bills (heat, water, cable, etc.)
  • Groceries and eating out
  • Gas for your vehicle
  • Clothing
  • Entertainment


Spending that occurs less often than monthly:

  • Car repairs or maintenance
  • Birthdays
  • Holiday spending
  • Personal upkeep
  • Travel

Step 3: Find the difference

Once you have your total monthly income and expenses, subtract your expenses from your income. You might find that you have more money left over each month than you thought or are spending more than you realized.

If income is higher than expenses, consider applying the excess income to an emergency fund, paying down debt, saving for retirement, or saving for education expenses.

If expenses are greater than income, review expenses to see what you can reduce and what you can eliminate completely.

Step 4: Analyze the results

Now that you know how much you have left at the end of the month (or don’t), you can make informed decisions on managing your money. 

Excess income can be used to create or contribute more to an emergency or rainy day fund or to increase retirement savings, vacation savings, or savings for home improvement projects, to name a few. It’s ideal to have three to six months’ worth of expenses saved for an emergency.

If you are spending more than you’re earning, you will need to review your spending habits and determine what is a priority and what is not. Remember that you should give yourself permission to spend money on things you want while pursuing the goals that matter to you.

Step 5: Create your spending plan

Make a plan for every dollar. You determine where your money will go before it gets spent. When prioritizing goals, keep the following in mind:

  • Think of your savings account as an important bill. Pay yourself first. Your financial institution can automatically transfer a specified amount from your checking account to your savings account every pay period. You can start small and increase as your ability to save increases.
  • Keep positive. This spending plan is a tool to help you reach your goals.
  • Your spending plan should be flexible. If you don’t reach your monthly target one month, modifying is okay.
  • Don’t get overwhelmed.
  • Once you’ve developed a spending plan that works best for you, make it a habit.