By Porsche Miles-Grant
In my opinion, a spending plan is a sophisticated way of simply saying budgeting. I found that people are more comfortable with making a spending plan rather than the notion of budgeting. Nevertheless, for the sake of this article we will refer to them both as a spending plan. The word budgeting appears to make individuals feel apprehensive and restricted. Specifically because budgeting infers that one needs to be more restrictive with their finances. Some may feel that the word infers that an individual has a lack of finances. What I’ve learned as a Certified Financial Counselor, is that most people don’t like to be told how to handle their finances. Such a subject can become extremely sensitive and controversial.
However, “If you knew better, you would do better.” It is ok to have someone who is qualified guide you in making wiser financial decisions. Whether you prefer to make a spending plan or a budget is not important. What is important, is that you do something to manage your money. You need to keep track of what is coming in and what is going out. There is a misconception that a spending plan is only for the poor, or individuals who are struggling, but that is not true. There are many wealthy people that create spending plans. This is how they stay wealthy. Using a spending plans helps the rich in being proactive with their finances. From this plan, they understand what their discretionary income is, and how much they can afford to spend. Such a plan helps the wealthy maintain their financial status.
Both types of plans gives you a snap shot of your financial behavior. By creating a plan you are able to distinguish your wants and needs, stay accountable, and understand how to live within your means. When you really reflect, how many times have you received money and within 24 hours had no idea what you spent it on? How many times have you over spent, and as a result incurred unnecessary fees? How many times have you forgot to pay a bill, and received a late notice? Well, creating a spending plan can eliminate all of those issues, and help you achieve your financial goals.
More often than not, a spending plan will help you focus on your priorities. So where do you begin? Research shows that 30% of your income should go towards housing needs, 20% towards transportation, 15% towards food, 7% towards insurance, and 18% on other. Calculate and record your monthly income and expenses. This can be done in a notebook or on a spreadsheet. Before making any payments, take 10%-20% of your income and put it into a savings account. Begin to pay the expenses that are of highest importance. If you have enough money to pay all expenses, do so. If you are not able to pay all expenses, don’t ignore the payments. Call those lenders/ companies and explain your financial situation. Ask about hardship programs that will allow you to make minimum payments until you are able to get back on track.
Ask about payment plans. Many lenders want to help you make responsible decisions, and have programs in place to assist you. Write down some things that you want, and use them as incentives to pay down your bills. Once you have taken care of your priorities, you can then begin to put aside savings for your wants. Review your plan after practicing it for a month. Determine if you need to make adjustments. Many times, we find ourselves paying off bills and having additional funds available. Ask yourself, “Where can this extra money go towards?” There may be other bills you need to pay off, and can use those additional funds to do so. If this is not the case, place those additional funds into your savings account, or invest them into a retirement plan. This kind of planning has long term benefits on your life.
Porsche Miles-Grant is the Community Engagement Coordinator at CASE Credit Union. Contact her at 517.367.1001 or send an email to Pmilesgrant@casecu.org. Log on to www.casecu.org for more information.
This was printed in the April 3, 2016 - April 16, 2016 edition.