As we mentioned in a previous article, a Spending Plan is an excellent strategic tool to spend less and be able to save. In this opportunity we will explain how to make your own spending plan. If you haven´t read the previous article where we explained what a spending plan is, we recommend you read it.
First things first, find a pencil and paper you can use to write. The first step in making your Spending Plan is to ask yourself some questions and write down the answers on the sheet of paper. This way you can reflect on your expenses and have a clearer picture of your spending. This way everything will be easier for you, don´t forget to write down the answers.
- How much money do I earn per month?
- What are my sources of income and how much do I earn from each one?
- What are my fixed, flexible and discretionary expenses?
- How often do I have to pay them?
Answering these questions may seem a little complicated to us, but it is not. Simply by remembering the payments we have to make every month we already have an idea of at least the amount of euros that we do or do spend every month.
Before continuing with the explanation we must pause to define in a simple way the concepts of fixed, flexible and discretionary expenses.
- Fixed expenses: are those you have to make regularly every certain period, monthly or weekly, like rent for example.
- Flexible expenses: among these expenses are what we spend on transportation, taxes, and payments that we usually make in extraordinary ways, such as lending you money to buy certain medicine or basic necessities.
- Discretionary expenses: refers to those expenses that are not necessary and that we make for our own pleasure or comfort, such as taking a taxi instead of public transport or comparing sweets.
Once we have these concepts clear we can proceed to make our own spending plan. If you don´t know how much you spend on your flexible and discretionary spending we advise you to make an estimate of how much you spend weekly and multiply it by 4. This way you will have a fairly good idea of how much you spend per month.
The Spending Plan is based on these 2 key concepts. The first is the basic idea, which is to write down how much money we are going to earn during the month. The second is the importance of the Spending Plan which is to live with your income so that you can pay your expenses and save some money at the same time.
Here´s an example of what your spending plan might look like, you can copy it and start making your own:
First you divide the paper into two parts. In one part you will write down your monthly income and in the other part you will write down your monthly expenses, you can use the image above as a guide, you will have to spend time thinking about all your expenses carefully, we know you will not think much about income because you must have it very clear beforehand. It is important to review everything and do your calculations, as well as update the plan as your situation changes over time.
We hope you found this guide useful in creating your spending plan. In a next opportunity we will give you tips to make your spending plan more effective.