Advice & Planning


MCU’s Tips for Creating an Effective Spending Plan

If you’re struggling to keep track of how you’re spending, a spending plan or budget will help you to plan and stay vigilant of your finances. By creating a breakdown of spending, income and debts, you’ll be able to better identify wasteful spending, adapt quickly to a financial emergencies and even achieve new financial goals.

1. Know Your Cash Flow

A budget is a tool to help you manage your spending within your means so it’s easy to see how the first step to developing an effective spending plan is to know both your income and expenses. Remember, not all expenses or sources of income occur within a single month. For example, your tax return and your car insurance bill may only appear once a year and home owner association fees may only occur quarterly.

To get the best idea of your cash flow, keep track and make a list of all of your earnings and spending for approximately 2-3 months. Be sure to record every purchase, no matter how small. Remember, a daily cup of gourmet coffee may not seem like much but the expense will add up! Known expenses and sources of income that occur outside of that time frame should be factored and planned for as well.

Creating a visual of your cash flow will not only help you determine how well you are managing your money, but will also aid you in determining how you can make changes to your spending habits.

2. Identify Your Financial Priorities

For most consumers, making choices about where to allocate funds is a necessary part of budgeting. This requires being able to differentiate between your wants and needs.

For example, once seeing your cash flow written down, you may be able to decide that you while you need wifi, you can do without an expensive cable package. You’ll need to pay rent or your mortgage but can decide not to run your AC unit all summer or pay down debt before you can take a vacation. You may also prioritize exactly how much of your budget you would like to save.

Prioritizing these expenses will help you to make the tough choices that will help you live within your means.

3. Set Goals

It’s difficult to change your spending habits and lifestyle without a goal to work towards. Whether, you’re working to pay off debt or reach a financial milestone, setting an objective for you budget will play an important role in how successfully you stick to it. In addition to staying committed to your budget, a long or short-term goal will also help you to focus your actions, research and resources.

4. Expect the Unexpected

Saving is a problem for many Americans. In fact, nearly 40 percent of US workers have reported having less than $1,000 in savings to cover an emergency situation. No matter what your debt situation is, you should also begin saving for a rainy day. Before you work toward your financial goals, it’s important to have a safety net in place. A general rule of thumb is to set aside 3 to 6 months' worth of living expenses for an emergency fund in case of job loss, illness or an unexpected bill. While saving for a rainy day make mean a delay in achieving other financial goals, these savings will ensure that your financial situation will be secure even during a difficult time.

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