For most income earners, it is easy to estimate how much money they will get each month. Employees typically have fixed salary and benefits while businessmen can perceive or at least estimate how much their profits will be. Calculating your income is a fairly easy thing to do.
However, calculating your expenses can be slightly more difficult. Many people do not know what they have spent in the last week, month, or year, and many people do not have a good idea of how much they will need to cover their expenses in the next week, month, or year. An allocated spending plan is important because it allows you to manage your money. It is a way to track your money so that you will know where your money goes or will go. It is a list of spending based on your income.
The Importance of an Allocated Spending Plan
With an allocated spending plan, you can rest assured that your money will go where it needs to go. This can also be used as a baseline to show you how much you need to earn so that your expenses can be paid easily. This also helps lessen the burden of paying for unexpected expenses since all the expected expenses have already been paid.
Benefits of Having an Allocated Spending Plan
- It easier to allocate and to prioritize important expenses. With an allocated spending plan, you can easily place the important expenses on top of the list and pay them off first, you can slowly pay-off the expenses from important to the not-so-important.
- It is easier to budget. Since your spending is specific, you can easily see which expenses are taking too much of the pie. After writing down the important expenses and after paying them off, then you can cut your spending on the less important expenses.
- It allows you to save money more easily. You can easily calculate how much money will be left for saving if you have an allocated spending plan. You can also easily save a specific amount each month if you are planning to buy something expensive.
- You can control the money spent on luxuries and entertainment expenses. With an allocated spending plan, you know exactly where your money goes, which makes it easier to increase or decrease the money allotted for extras. After setting aside money for all your obligations, you know when you have the money to buy something extra.
How to Set Up a Spending Plan
1 Make a list of your income and the schedule when you get it. For example, you will want to make a plan based on how often you get paid (weekly, monthly, bimonthly). This will provide an estimate of how much you can afford to spend during each pay period.
2 List your fixed expenses and their schedule of payments. It is important that you know what the bills are and when they need to be paid.
3 Compare the schedule of your income and the expenses or bill payments. With a comparison of income and expenses, you can distinguish what money is allocated for what.
4 Allocate some of your money for savings. With the income and expenses written down, it is easier to see just how much is left to be saved.
5 Include luxuries and entertainment expenses on your list. When you are planning to buy something that is not an immediate need but a luxury, you also need to take this into account when making an allocated spending plan. You also need to include the entertainment expenses. Although, the cost of entertainment activities vary, it is easier to plan for such leisure activities if you know how much money you have left.
6 Put your allocated spending plan in writing. It is easier to understand it, and it is easier to cover all aspects if it is written down.
Squandering or at least spending without a plan is not reasonable since the money you have comes from your own hard work. Setting up an allocated spending plan is your best defense against the temptations of spending more than you can afford.
Do you plan your expenses or do you just go with what comes up?