The spending plan: Budgeting for non-budgeters

I've never been able to keep a budget. They're a great tool for many people, but for me a budget is a recipe for failure. It's too fussy. I can't stick to it. When I don't stick to it, I feel guilty. When I feel guilty, I want to spend more money. Still, I've found it's helpful to have some sort of written financial plan. Over the past few years I've developed what I call a “spending plan”.

To me, a budget is a detailed itinerary. A spending plan, on the other hand, is just a list of places I'd like to go. It doesn't have the same sort of rigidity that I associate with a budget. When I create a spending plan, I tally upcoming income and expenses, and then use these numbers as a guideline for determining my financial direction.

My Spending Plan

I suppose it would be easiest to just show you an actual spending plan I drew up three years ago. (This document is an important piece of financial archaeology. It's the first spending plan I ever made, and it's the first sign that I was ready to start getting rid of my $35,196 in debt.)

As you can see, I began by listing my debts in the order that I wanted to repay them. (This was before I knew about the debt snowball.) Next, I listed my expected sources of income. Finally, I brainstormed a possible plan of attack.

Despite the fact that I will meet the goal I set for myself in this plan, my path to this destination has been different than I had intended. Surprise expenses occurred. I didn't adhere to the plan as well as I'd hoped. My income projections were too optimistic. The bathroom remodel cost twice as much as I had anticipated. Because of these things, I've made it a habit to draft a new spending plan every few months. This allows me to compensate for changing circumstances and changing priorities.

Your Spending Plan

If you, too, are wary of budgets, consider using a simple spending plan to give direction to your finances. The example above is more involved than it needs to be. Most of my spending plans now are about half the size. When drafting your spending plan, be sure to do the following:

  • Project income. How much do you bring in every month? Will you receive any windfalls soon? For example, every winter I get a sizable bonus at the box factory. I make sure to factor that into my spending plan.
  • List fixed expenses. Jot down those things for which you must pay every month: cable, telephone, gas, electricity, etc. These are the bills that you must pay to maintain your lifestyle. (I didn't include these in my first spending plan — oops!)
  • List your debts. When I put together my spending plan, I keep debt separate from the fixed expenses. My other bills stay relatively constant, but as you can see, I like to play with my debt numbers.
  • Plan ahead. Do you have any large expenses on the horizon? When I made my first spending plan in the fall of 2004, I knew that we would be remodeling our bathroom the following summer. I made sure to plan for that.

Good financial habits make it easier to adhere to a spending plan (or to a budget). In order for me to stay on track, I need to track every penny I spend. I use Quicken to do this, but you can use Personal Capital, a spreadsheet, or simply pen-and-paper. When you track your spending, you can tell when you've gone off course.

A Man With a (Spending) Plan

A spending plan can help you track your financial goals. In turn, financial goals give your life direction, keep you from making foolish choices with money. Before I had goals for my money, I spent it on whatever struck my fancy. It was easy to fritter away my cash on books, comics, and video games, because I didn't feel like doing so affected my future. I had no plan for the future. But when I drafted my first spending plan three years ago, the future suddenly became crystal clear.

If you do choose to implement a budget or a spending plan, review it regularly. I try to review mine at least once a month. Periodic review can help you stay on course.

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Kai Jones
Kai Jones
12 years ago

Just this summer, partly inspired by reading this site, my husband and I decided to get out of debt. We use this kind of spending plan, rather than a budget. We have 2 joint accounts: his pay is deposited directly into one, and mine into the other. We have distributed our spending (bills, groceries, etc.) between the accounts for many years but were completely undisciplined about using credit. So we sat down with paper and pencil and wrote out a plan, starting with our monthly pay deposits and listing all the recurring bills like mortgage, utility, and credit repayment. Then… Read more »

The Reviewer
The Reviewer
12 years ago

I save everything I plan to, and pay everything I owe bills wise the day I get paid. I then enter it into Quicken (older edition) and then I know how much I have left. This works because the things I need are taken care of except for gas and food and the rest left over is what is in my “spending account” for the next 2 weeks. This is how I do it, it works for me and lets me save, and pay everything i need to and leaves me with whatever is left. When I notice I have… Read more »

Mark S.
Mark S.
12 years ago

When the Mrs. and I got married, I had $12K in debt (mainly credit card), but I had just started a new job with a significant pay raise (>30%). So with my wife’s salary and my pay raise, I used Excel (and the Quicken) to figure out how to reduce my debt. I started using some 0% balance transfers and cut back on expenses (moving to the same city as my wife cut down long distance bills significantly). With a pay raise and a couple bonuses, I was able to pay off my debt in 18 months. After the debt… Read more »

Amber
Amber
12 years ago

I’ve been trying the multiple account method that I’ve seen mentioned somewhere (probably in a comment!). We have a bills account, which I’m VERY GOOD at tracking, and a “fun” account, which I’m VERY BAD at tracking. We’ve tried to develop a spending plan (like you, I feel budgets chafe too much), but I’d been overwhelmingly optimistic that we’ll be able to change our spending stripes cold turkey. Sadly, we weren’t able to, but we’ve been getting better, and making less excuses to ourselves for our spending behavior. That I’m proud of, but I know we could do better. We’re… Read more »

Alaine
Alaine
12 years ago

I have been trying to follow a suggestion from a Lifehacker reader to spend money on a 60/10/10/10/10 plan: “Basically take 60% of your monthly check and budget that out for all your expenses. Rent, Transportion, Groceries, etc. Next, 10% should go into your retirement savings, you’re gonna need that cash! 10% should go into long term savings. This is emergency money in case everything goes wrong and you need quick access to real money. 10% more should go into short-term savings, say 1 to 6 months worth of savings, then you’d be surprised what toys you can afford! Then… Read more »

Brian
Brian
12 years ago

As a long-time Quicken user and numbers geek, I’m sorry to say that Quicken’s budgeting tools are one of the weaker points of the software. It’s great at telling you where your money went, but not in deciding where it “should” go in the future. When it comes to planning our family’s expenses, we just determine what percentage of our take-home pay will go toward major categories (e.g. 36% for housing, 12% for groceries) based on experience and desired lifestyle. For any irregular expenses (e.g. insurance premiums, remodeling projects) I’ve setup separate online savings accounts with automatic transfers every pay… Read more »

jasonn
jasonn
12 years ago

I’ve been using a “spending plan” similar to what you’ve outlined for awhile now, and it works quite well for those of us who aren’t so inclined to following a budget. A budget works for some people, but like yourself, I find it easier to track financial goals in less defined terms.

ryan
ryan
12 years ago

i do not budget, for then there is only a set amount of savings to hit and alloted expenses for each category that you may feel no pressure to not spend all of. what i do is more militant. i try to keep all expenses at the absolute comfortable bottom, all of the time. this leaves all excess cash available (which will fluctuate, but should remain higher than a planned savings of $200 a month or whatever) to put towards what I am currently saving for/paying down. anything that takes cash out of my hand, no matter how little, is… Read more »

Chris
Chris
12 years ago

This is so perfect! I was just talking to my wife the other night about this very thing. She seems to think we don’t budget, and I felt like we do. I never liked a strict budget – it is hard for me to stick to it exactly. It seems that I’ve been using your “spending plan” idea all along. Because of this, I might not necessarily know exactly how much I am spending or will be spending, however I can work toward my goals, and look back and see how well I’ve done over time. This is much easier… Read more »

Patrick
Patrick
12 years ago

I use YNAB to budget my income from last month. Using this plan, there are no surprises. I love how I can very easily track every penny as well as create accounts for saving up for various expenses like car insurance.

Whitney
Whitney
12 years ago

I’m not sure if I read about it here or elsewhere, but I ordered You Need A Budget (YNAB) and it has been amazing. I also use it more as a “spending plan” than a “budget,” but the way it compensates for overages, and the basic idea of living on money you have already earned, has been revolutionary for me. It’s available at http://www.youneedabudget.com/.

Caroline
Caroline
12 years ago

Gee, thanks for such a glass-half-full viewpoint for handling money. I have a definite allergy to budgets and numbers seem to gravitate away from my brain like a negative magnetic field. So many times I have vowed to keep track of my spending only to lose the battle at the end of the day as I wonder…was it $5.60 at the drug store and $65.50 at the supermarket or was it $56.00..oh well! I’m going to give your “spending plan” concept a try. I sometimes wish there was a support group for people like me…you know,something like: Help for the… Read more »

Heather
Heather
12 years ago

We have used a spending plan/budget method, however, have only updated it once or twice a year – whenever something changed either income levels (we got a raise) or we paid off a debt. We would like to track it more closely in order to save ahead better for large purchases (another car).

Cara
Cara
12 years ago

We have been working with low income women on a concept called “reverse budgeting” and have been using the curriculum called “Money Smart” developed by the FDIC. I believe your spending plan is also an applicable tool. The use of Quicken might be a little intimating to the folks with whom we work, but good old pen and paper or a simple print-out of an Excel spread sheet provides the visual needed to make an impression about why we need to track all of our spending in order to begin to repay debt and reestablish (or establish for the first… Read more »

Mike
Mike
12 years ago

Ugh…budgets make my head hurt. My wife and I use a fairly simple method we first found on MSN, the 60% solution. The article is here: http://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/ASimplerWayToSaveThe60Solution.aspx Basically 60% of your income is put towards so called “committed” expenses. These are all of the bills, subscriptions, groceries, club dues, etc that you agree are part of your normal lifestyle. These may or may not all be “essential”. My cable bill is a “committed” expense, but totally not an essential expense. Other portions of the 60% are definitely “essential”. All of our taxes and insurance is part of our 60% committed… Read more »

Kelly H
Kelly H
12 years ago

Can I just stand up for the budget for a sec? It’s tedious as all get out, but one thing I like about having one and looking at it often is that when my earnings change (every month), a budget helps me avoid “spend more when you earn more” syndrome. I like starting with what I actually need (ie, my budget), and then going to what I earn, in that order, so I can save the maximum each month. It also gives you a wake up call about silly expenses (for me, pedicures in the winter–um, why?). I swear by… Read more »

Don J
Don J
12 years ago

First off, I just want to say thanks to J.D. for making it so easy to enter the draws each day. Not easy in terms of the requirements for entry, but easy in that you somehow keep posting about stuff that is on my mind already! For a variety of reasons, my finances had been a mess for about two years, and over the last few months, I chipped away at a mess of old receipts and mysterious transactions until I was caught up with everything. “The Next Step”, I thought to myself, “is to create a budget”. Easier thought… Read more »

Aleks
Aleks
12 years ago

I’ve never made a formal spending plan, let alone a full-blown budget, but I put everything on Visa and track my spending religiously. I also set a general target for each month. In months when I have a large expense I try to cut back spending in other areas. What this means is that I operate on a compressed version of the corporate spending cycle. At the beginning of a month when only my fixed bills are accounted for, I tend to spend more freely. As my Visa billing date approaches and my spending approaches (or exceeds) my monthly target,… Read more »

Jill
Jill
12 years ago

I don’t budget… I am just psycho about saving. I get such a high from putting money into my savings account that it keeps me in line.
This will have to change soon, as we are starting a family and I am going to stop working. Money will be tighter…

Rachel
Rachel
12 years ago

I like this idea of a ‘plan’ rather than a budget. Budgets make me go crazy, and feel so constricted, which makes me want to break out of it. But a plan, that I could get behind. I think we do have a plan–just not on paper–but putting everything down, sitting down, and talking about it–I think that will help us get there.

Scott Wincklhofer
Scott Wincklhofer
12 years ago

I agree that Budgeting is one of the weakest features of Quicken. Does anyone know if this has been improved for 2008?

allen
allen
12 years ago

I am not trying to suck-up here, but you have no idea how happy i am to see something like this. As I’ve stated before, i have just bought my first home (to save mucho mucho $s), but I really want to get ahead, to build up an Emergency Fund, to pay down the car (who’s value is only declining, as all cars do), to put more into retirement funds, &c. This isn’t something most 26 year olds can ask their friends about. My mom has everything on a strict budget, so trying to explain to her that I am… Read more »

Anne
Anne
12 years ago

My personal finance method is similar to Ryan’s in that I don’t have a target savings (actually student loan repayment) goal or target budget categories. Instead I try to keep my expenses to a (reasonable) minimum. Lately I’m experimenting with a method of doing this that is sort of a cash flow budget. Every time I get a paycheck, I do a cash flow analysis that takes me to the next paycheck. I will literally write every day between now and the next payday out on a piece of paper and forecast what expenses I will have on each day.… Read more »

Eric
Eric
12 years ago

Thanks for sharing your spending plan. I do something similar by laying out expenses in Excel for the next several months to a year and forecasting balances. In conjunction with tracking net worth, it does well to keep me on track.

Lauren
Lauren
12 years ago

Great Post!

My husband and I have tried a spending plan. We added up our monthly expenses, then tried to set a system for what’s left over. We’re both not big spenders, but we waffle a lot over where to put the money that’s left. I feel like we usually randomly put it in various accounts just to quickly get it out of the checking account. I guess we need a savings plan on top of the spending plan!

Walt
Walt
12 years ago

One of the things to consider in the debt snowball calculation is paying off debts that you can expense on your yearly taxes. Home equity loans and mortgages should be placed further down the list than non-exempt items like car loans, credit cards, etc.

Andy2
Andy2
12 years ago

I don’t have enough income yet to really need a budget. Right now I’m living at home and going to college. Next year, however, finances will be tight. I’ll either be living off a stipend (around 13,000 a year) or savings (about the same). So budgeting will definitely be necessary. I like planning stuff, so I’m going to try a full scale budget. I think that is the best way to make my money go the furthest. Right now I only make about $300 a month. $200 goes to savings and the rest I leave in my checking account for… Read more »

Vyt
Vyt
12 years ago

That’s a nice alternative to the traditional budgeting concept 🙂

I’m trying to do my best with keeping a budget and can say it really opens your eyes at your real financial situation and where are you heading. It makes no wonders (finding extra cash :), but enables to fight with the spender inside me 🙂

I write down my daily expenses in a great Project application on my Nokia smartphone and then budget in an Excel file.

Jordan
Jordan
12 years ago

I feel the same way as you about budgets. Every time I crack down on my spending I feel like crap because I think “I’ve worked 150+ hours so far this month, why the hell can’t I have this *insert impulse want*” And it is sort of true. What is the point of working so hard if you are unhappy? you can be unhappy not working too. They way I use my “budget” is more to just define my expenses, not to limit my spending. I KNOW what my rent and cable, and internet, and car will cost me each… Read more »

Brandon Barkley
Brandon Barkley
12 years ago

When I decided it was time to reign in our spending, I basically took this approach: First, I made a list of all our recurring expenses (bills) whether they were monthly or not then I divided the non-monthly ones into monthly expenditures. I noticed then that I get paid every two weeks so I could get an idea of how much I needed to set aside each paycheck by multiplying the monthly cost by 12 then dividing by 26. I realized this was kind of bunk though from the “getting started” standpoint as there are only two months that I… Read more »

Mike
Mike
12 years ago

@Anne: I don’t want to be too confrontational, being a newbie to this site and all but… You are right, the 60% of living expenses is an arbitrary number, but in reality, all budgets are based on arbitrary numbers. And to be fair, going in you can set your committed living expenses to whatever you want. 70%, 50%, 82.5%, but I think it is important to have the targets in place. Look at it this way, a race is an arbitrary distance between point A and point B, but unless you define point B as the end before you start,… Read more »

My Road to Wealth
My Road to Wealth
12 years ago

I never use a budget. I know the exact amount of our fixed expenses, income and the date of each payment and deposit. So I leave enough in the checking to pay any upcoming bills, the rest of the money I transfer them to our Money Market account. Unexpected expenses are few and most of them I pay with credit card so everything is on one statement and I can just pay the credit card bill off every month before due date. I usually just leave couple hundred dollar in checking for any emergencies. Before we buy any thing, we… Read more »

ross
ross
12 years ago

Along with a few of the other comments above, I’ve recently started the 60/10/10/10/10 method – though I think the 70/20/10 method is more realistic for me.

As for tracking money — I recently switched to expensr — after trying MSN Money, YNAB, Mint, dimewise, Excel, and every other website/software/etc I could find. Expensr is easy to use and doesn’t have too many unnecessary features. It’s too early to tell if I’ll stick with it though.

Flynn
Flynn
12 years ago

After tracking monthly expenses for over a year, I’ve come to the obvious conclusion that the trick to “budgeting” (or whatever term you prefer) has little to do with regular expenses or the plan toward investment and debt reduction but everything to do with month-to-month variations in spending. I’m not a fan of the emergency fund, preferring higher investment yield. Instead, we’ve built a Fun Fund, which we raid several times each year for vacations and fun purchases. Our essentials budget (including all regular bills and an average level of typical discretionary spending) has enough wiggle room, so at the… Read more »

FMF
FMF
12 years ago

Wow. That old budget gave me a bad flashback. Was that the old kind of paper you had to thread through the ends into the printer? Yikes!

Jay Andrew Allen
Jay Andrew Allen
12 years ago

We also use a type of 60% plan, which I call a “bucket” approach. We divvy up how much money we have coming in each month, carve out the regular expenses, and account for any one-time planned purchases (e.g., kids’ birthday parties). We then use historical data to estimate “buckets” for remaining expenses – e.g., $500 per pay period for groceries (we have four kids, folks!), $150 for personal entertainment, etc. This is working fairly well for us. It’s working much better since I finally broke down and FORCED myself to keep a ledger book of all transactions. I’d been… Read more »

Ben Mathews
Ben Mathews
12 years ago

It seems that a lot of the problems that I’m reading about with a budget are tied to a misperception of what a budget is. It is not an instrument of torture. It is a tool to help you accomplish what you want to do financially. It does not MAKE you do anything, it helps you to do what you have decided you want to do. Now admittedly, this is sometimes like loosing weight. Knowing we should take action, but the personal commitment isn’t quite there. Personally, my wife and I have worked through several different methods the last seven… Read more »

Brenden
Brenden
12 years ago

I have been using YNAB since the beginning of this year and have loved it so far. Though I’m really not using it to “hard” budget. I often find myself shifting the budgets of categories around if one goes over. My hope is that after a while of doing this I’ll be able to look back over the data and really have a good idea of what each category’s budget should be and then work at them from a good starting point.

pfmoron
pfmoron
12 years ago

I have the dual problem of having an irregular income and being overly optimistic in my income projections/goals for each month. Having an 8-month old will tend to do that to a flexible work schedule.

I have been forcing myself to review/revise my budget/spending plan every month and after 6 months it is finally starting to normalize…reduction in number and magnitudes of errors each month.

Definitely an essential tool in getting control of your finances.

freecia
freecia
12 years ago

I’m not one to keep track of every single receipt. Instead, I use yodlee with my bank accounts, bills, and credit cards to keep a record of what I’ve spent, in addition to tracking an ambiguous “cash” category. I keep a general idea of where my cash goes (mostly grocery stores and cafes which just goes into “food”) but don’t track it down to the cent. I just make a note in yodlee that describes what I pulled the cash out for, like “food” or “travel”, then add it to the appropriate category. So for the people who are non-budgeters… Read more »

Anne
Anne
12 years ago

@Mike Those are fair points, and I guess it all comes down to how each individual is motivated. When I get a paycheck, I am motivated to save, not spend. Sitting down and planning my spending for the next couple of weeks actually helps me curb the impulse buys. I think if I had a 10% fun money budget I’d be buying a lot more shoes and going to a lot more movies because I’d look at that 10% as a quota, rather than a ceiling. But I can see how some people might have the exact opposite experience and… Read more »

Chris
Chris
12 years ago

My wife and I do something similar, we don’t budget or balance the check book but we do enforce limits on spending to allow us to spend less than we make. We do this by multiple accounts (aside from retirement/college saving/emergency fund which comes off the top). One is for all the fixed/known expenses (mortgage/insurance/utils/etc/investments/savings). The other is for living expenses (food/clothes/entertainment). The living expenses gets a fixed amount every month. Once we hit the limit we can’t spend until the next month (sometimes we cheat) but it does force us to think about how much we spend each month.… Read more »

Jay Andrew Allen
Jay Andrew Allen
12 years ago

freecia – I agree that down-to-the-cent accounting is a PITA. My own technique is to round up to the nearest dollar. I use this in conjunction with Bank of America’s Keep The Change program, which actually *does* round up to the nearest dollar, automagically transferring this financial detritus to my savings account.

By month’s end, I have a nice chunk o’ change set aside. And my accounting is a snap to boot.

Chad D
Chad D
12 years ago

A budget is the one remaining financial discipline that I just can’t get the grasp of. And I can’t figure out why it’s so hard to start.

Matt
Matt
12 years ago

Budgeting just takes too much time for me. The best financial habit I’ve ever developed is doing every transaction but recurring bills with cash. Not checks/debit cards, but the actual green(ish) paper and little round pieces of metal. I know it sounds extreme, but wow–you end up budgeting without even trying. My wife got me started on it. She’s from Japan, which is still a mostly-cash society. People over there walk around with big wads of paper cash and coin purses. It’s crazy. My wife doesn’t even trust debit cards–the float time between the purchase and the money actually leaving… Read more »

Katie
Katie
12 years ago

We did some round-number guessing at the beginning of the year, based on prior months’ spending. It needed some adjustment, but our spending plan is the basic “pay yourself first” plan. All retirement, house, etc. savings rolls off on payday, leaving in the checking account only the amount that we have to spend. Anything left at the end of the month rolls of for more fun longer-term goals (travel, furniture, etc.) It’s been a fantastic system for us: you can’t spend it if it’s not available.

IdeaSenator
IdeaSenator
12 years ago

It took me a long time to get a budget drawn up and now I am glad I got on that. I am checking it every possible second to see where I can cut or reduce. It truly helped me focus and stay well informed about my spending habits. I just use good old excel to automate things for me. I have a spreadsheet that does daily and monthly caculation. I then do pie charts or graphs to have a picturesque view of my spending habits.

Zephan Hazell
Zephan Hazell
12 years ago

I as a college student I have greatly seen the value of a budget. I have the opportunity (not burden) of paying for my own college. I have received a small amount of scholarship but not nearly enough to cover the cost of school. I have the goal of graduating without any debt and so far as far as the eye can see towards the horizon I will achieve that goal. Having a budget has greatly helped me to stay on target of reaching the goal. Having a budget helps you plan the expenses and seeing how much money is… Read more »

Jennifer
Jennifer
12 years ago

Budgets used to never work for us. Our pay would be different each time, or random expenses would come up that didn’t fit into the budget, etc. It was always very frustrating! When we started Dave Ramsey’s Financial Peace University and learned about the zero based budgeting it started working a lot better. I basically set a budget each time my husband gets paid. It is very flexible and takes me about 10 minutes each time. When expenses come up I just incorporate them into the budget. Maybe I don’t need to purchase any gifts this month, yet we have… Read more »

Cady
Cady
12 years ago

I’ve changed my approach to budgeting after using YNAB. When I first got it I ran all my numbers and then saw where the leaks were in my spending. I then realized that I’m too minutiae-oriented to be happy using it often because I like to look at my books too frequently. So I ran it for a few months until I got a sense of exactly how much I can spend on frivolity and I haven’t run it again. I know now if I spend more than $20 a week on things I haven’t planned on I’ll be in… Read more »

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