Use a spending plan

When you have your savings goals defined, you are ready to start saving. But where does a student with limited income find the money? There are several well-known strategies, including using a spending plan (budget) to get control over your financial life.

With a spending plan, your focus moves away from daily and monthly fixed expenses, such as rent, insurance, loan payments, etc., because these do not change much over time. The emphasis shifts to the money that is leftover after these fixed expenses are paid. Use this income to meet savings goals that align with your values, whether your goal is to fund a vacation or a retirement account.

Create your spending plan:

  1. Track your spending. Become a spending detective and track everything you spend for one month. It helps to use a notebook, spreadsheet or mobile app to keep track. (Be careful to protect your privacy and financial information when choosing an app or other software.)
  2. Categorize expenses into “needs” and “wants.” For example, you need to pay rent, but you want to spend a night out with friends. Read this article for more information about wants and needs.
  3. List your income. List any income you normally receive. Be sure to include windfall income (like bonuses, birthday money or tax returns).
  4. Identify your fixed expenses. These are usually found in your “needs” category and include things like rent, cellphone bills, car payments, student loan payments, etc. The monthly amount is set, and generally does not change.
  5. List your variable expenses. These expenditures change, but you can control how much you spend. Groceries, entertainment, clothing or streaming fees are good examples. Mostly, these are your “want” items.
  6. Recognize periodic expenses. These items occur periodically in the year but not monthly. They can include doctor visits, insurance payments and tuition payments.
  7. Identify your savings. Yes, your current savings levels and savings goals are part of a spending plan. Think of it as spending on your future self. Use the SMART goal guidelines to assess whether your goal is attainable in the specified time frame.

Now you have an outline for your spending plan. Plug different amounts into the plan’s categories to fine-tune the plan for your goals and values.

If your spending plan does not balance (you have more expenditures than income), then you are out of balance. You will need to find ways to either cut your variable expenses, increase your income, or both. The next few sections will discuss ways to cut your expenses and find money to save.

Watch the video on Budgeting Basics and then use the CashCourse Budget Wizard to create your individualized spending plan.

 

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