Often when we think of good financial management we think of using a budget and saving money. It makes sense. Keep track of your day to day expenses and put a little away for a rainy day. But we also know that life isn’t that simple. When it comes to spending money the normal, every day expenses aren’t often the ones that cause us problems. The bigger spends, expensive holidays (both travel and seasonal) and the unexpected emergencies are the real trouble makers. To go into a little more detail, here are four reasons why you need a spending plan.
To allow you to save for upcoming big spends.
The first and most obvious reason to have a spending plan is to allow you to save for upcoming big spends. If you know a large expense is on the horizon you can prepare by setting money aside. Instead of it being spontaneous, and therefore out of control, it can quite literally be a calculated decision.
Take Christmas for example. A lazy plan might note a monthly “miscellaneous shopping budget” of £100. But what about December? Let’s face it, the majority of us spend far more at the end of the year than in any other given month. If you have a spending plan in place for each of the events of the year, both little and large, you can forecast that and save accordingly. This applies to holidays, weddings, planning for a family. Anything that isn’t a normal part of your monthly budget.
To help you to stick to your monthly budget.
I’ve written before about why you need a budget. In a way, a budget is essentially a monthly spending plan. A way of telling your money where to go and keeping every penny in check. In the same way that it’s important to plan for the big expenses of the year, each month always throws up it’s own small surprises. Birthdays, anniversaries and other special occasions which often mean spending money on a gift and drinks and dinners and so on are particularly important to acknowledge in your plan.
A monthly budget typically covers home expenses, food shopping budget, debt repayment and other costs related to the immediate family. However, I know I have a terrible habit of forgetting the extras, such as birthday presents. Having these noted somewhere obvious, like your calendar, means that you don’t spend more than you can afford to leaving yourself with £0 at the end of the month, or find yourself unable to pay for essentials because of irresponsible spending.
To allow you to adjust the plan if life dictates.
If you have a spending plan and therefore an awareness of where you plan on telling your money to go in the coming months, you are in control. If and when something goes wrong you are already on top of things and able to adjust accordingly.
Let’s take an extreme example and say you lost your job. The immediate month or two ahead could be a struggle financially. When you have a spending plan you can instantly make the decision to reduce or remove upcoming spends. Suddenly that weekend away in the summer is far less affordable. Best to remove it and avoid further stress for yourself. You can always rebook later when you secure a new job.
To help you stick to your long term goals.
As I have already discussed, it is very common for most of us to manage money on a monthly basis, with the occasional glance at the year ahead. But what about long term goals? Depending on where you are in life, you might have some big milestones in front of you that you’d like to be prepared for. Whether that is buying your first house, sending a child off to university or retiring at the end of your career, all large expenses like these take a lot of advanced planning.
A spending plan allows you to ensure that an amount of money, big or small, can be saved each month for these bigger goals. It may take some sacrifice now but you know your future self will thank you. With a spending plan to keep you in check, a quick run to the shops “just to see what they have in” is no longer important. You know the house you buy next year will bring your far more joy.
We all want to be able to enjoy the money that we work so hard for. Planning our spending allows us to do that whilst knowing that our future is well taken care of!