When you hear the word “Budget” how does it make you feel? Sorta like your wallet (and you) are on a “diet?” It is usually way more fun to “spend” than to feel restricted to not spend. It’s almost like when you think I should not eat any ice cream or sweets — no cake, no cookies, no candy and especially, no ice cream! Most budgets make you feel like you have to live on a diet for the rest of. your life. What if I said you can create a plan that helps you feel like the CEO of your household? How can I feel like the CEO….
… if you hear the word “Spending Plan” how does that make you feel? Do you think that is only for businesses? Do you think that sounds way more fun or does it sound too challenging? What is the difference between a “budget” and a “spending plan?”
I know I hadn’t heard of the spending plan until I found myself divorced and trying to buy a house on my own with an elementary school-aged child. I was trying to figure out how to budget with only 1 paycheck and a way to save and pay for those “surprises” like “Mom, I have to do a report and has to be on poster board and it’s due in two days!” or “M’am, you need new brakes!!” Yes, the $10 poster board is not the same as the $300-$500 brakes but still it adds up. And it can feel like you can’t even buy yourself the new sneakers your feet really need. And, you are trying to not use your credit card.
When I first heard “you are the CEO of your household” I was like whoa… a CEO brings something else to mind. I am just a single mom trying to make it paycheck to paycheck. However, the longer I let that sit, the more I liked it. And… when you realize that you ARE the CEO of your household so you CAN tell your kid no to new pet or we aren’t going to stop at the expensive coffee shop even though I want a puppy and a grande mocha too! The beauty of a spending plan is that it changes how you approach spending from no, I can’t to when can I?
When you start thinking that I need to get every dollar working for me and my family, it can be life changing. Mmmm… do I want to spend this $25 here or can I save the $25 a week so it becomes $100 a month that I can “spend” on saving for an emergency fund to cover those “surprise” expenses. Now, once I have $1000 in my emergency fund, perhaps, I plan to spend that $100 a month by putting it in a savings account for that trip to Disney to create special memories.
When that raise comes in, you can plan to spend it on your retirement fund. Yes, it is spending on investments and deferring spending for your future self. The easiest way to start putting money into your retirement savings (e.g. 401(k)) is when you first start the job — put in the minimum to get the “matching” and then if you get a 5% raise, increase your 401(k) or similar plan by 1% or 2%. This may feel restrictive however, you get a tax benefit so you could end up with a larger check by actually saving!
I understand this may sound like a “mind game” however, your relationship with money is important! Becoming CEO empowers you while Oh… my parents weren’t good with money and neither am I or I like being able to pick up the check for my friends when we have drinks (let’s not think about the credit card bill!) is not being realistic. Rethinking of yourself as the CEO of your life can give a new perspective and it is life changing! Seriously! If you are the CEO, you may tell yourself this spending plan does not have enough dollars to pay for everything.
What would a CEO say…. probably let’s either get a side hustle or perhaps, it’s time to update the resume and try to get a new, higher paying job! Yes, because getting a new job can be more beneficial than trying to stretch a too small paycheck to too many bills. I have been there and trust me, it might be scary to switch jobs, however, in the long run a new job and raise can help your career more than trying to eat peanut butter and jelly everyday. In this job market, you have to be strategic and you have to be strategic with your money. A spending plan focuses on what you are trying to achieve.
Are you looking for FIRE which stands for
Financial Independence, Retire Early? FIRE is a financial movement centered on aggressively saving and investing a high percentage of your income to achieve financial independence and retire much earlier than the traditional age. The core principles involve earning more, spending less, and saving/investing the difference to build a large enough portfolio to cover living expenses without needing to work. FIRE sounds better than not buying a latte when I really need one.
Even if you are already feeling behind — maybe you are divorced and trying to see how you can retire. You would not be alone as the average American household with the median retirement nest egg being around $88,000! The spending plan is a tool to help along with understanding certain rules. Yes, simple formulas to help calculate categories of spending. For example the 50/30/20 using 50% of your take-home pay for needs (housing and electricity), 30% for wants, and 20% for savings and paying off debt. This is very important whether you budget or use a spend plan — if your housing is more than 50% of your take home pay, it will be VERY challenging to get a head. If so, you are already juggling to pay the bills. Many people get stuck here and it becomes a spiral of credit card debt.
Step back and think would a successful CEO get stuck here? What would they do? Maybe looking at finding another place to live or increasing your salary. I am not saying it is easy. I had to go back to school and take my Associates Degree and turn it into a Bachelor’s Degree in Economics. Yes, it was hard but it was worth it!
Maybe just getting a new certification is needed. The best way to fix your budget is to fix your income. That said, if you don’t have a good spending plan, you will be right back in the same situation. If you get a new job, splurge on something and then think how do I grow these $$ into good plan for retirement. Even if it looks daunting and slow, knowing it is possible can be a huge relief. And knowing your spending plan can get you there is a very comfortable place to be.
Helpful Info and Links:
Key components of a Budget and a Spending Plan typically include:
- Income: All sources of money coming in (paychecks, side jobs, gifts, investments).
- Fixed Expenses: Regular, set monthly payments (rent/mortgage, insurance, loan payments, childcare).
- Variable Expenses: Costs that change monthly (groceries, utilities, gas, entertainment, clothing).
- Savings and Investments: Money set aside for short and long-term goals (emergency fund, retirement, vacation, major purchases
Consumer.gov: Provides a straightforward “Make a Budget” worksheet to help you see how much money you spend each month and plan for the next. https://consumer.gov
For an Example of a spending plan for personal finance and more information cut and paste the bolded text here in your browser in the Google search bar “example of a spending plan for personal finance” and AI will give you an overview with useful information.
Calculate your goal for Retirement: A common guideline is the “rule of 25,” which involves saving 25 times your expected annual expenses. For example, if you plan to spend $40,000 per year in retirement, your goal would be 25 x $40,000 = $1,000,000. It can be super hard to save this without investing in the stock market or at least getting high interest savings account.
This link to CalcXML will help you know if the money you do have saved is enough to last. It can be motivating to have this future forecast: https://www.calcxml.com/calculators/i-am-retired-how-long-will-my-savings-last?skn=#results
FIRE Explained: Financial Independence, Retire Early – Rules, Types & Planning. https://www.investopedia.com/terms/f/financial-independence-retire-early-fire.asp
I am not being sponsoring nor do I receive any compensation for this information. It is my writing and/or research of free information.
