Why Spending Plans are Like Maps: A Guide to Navigating Your Financial Journey
Spending plans are like a financial map. They help direct where our money goes and ensure we reach our financial goals safely.
Imagine you’ve just arrived at a beautiful tree-covered mountain in Colorado. There aren’t any hiking trails, so you’re prepared for an off-road adventure, exploring new territory. You’ve brought your water, snacks, and first-aid kit. You’re an experienced hiker, so you decide you don’t need a map or compass—you’ll just follow the sun and your instincts! Thirty minutes later, you realize you have no idea where you are, and the sun is all but invisible under the thick canopy of trees. Your grand adventure has now turned into a rescue operation as you send up a flare for help.
When you read that story, it’s obvious that setting off on an adventure without a map is a terrible idea. Yet, many of us do the same thing in our financial lives—we don’t use the tools available to help guide us. Spending plans are like a financial map. They help direct where our money goes and ensure we reach our financial goals safely. Along the way, obstacles may pop up, but an experienced map-reader knows how to reorient themselves. The same goes for creating a spending plan: as you become more familiar with it, you’ll learn how to prepare for the unexpected and adjust your financial goals based on new circumstances.
Step One: Create Your Spending Plan
The first step in managing your money is creating a spending plan! While there are many methods, the best one is whichever works for you. Some experts suggest starting with your fixed expenses (car insurance, housing, food, etc.), subtracting those from your income, and then allocating the rest into categories like dining out or entertainment. Others recommend breaking down your income into percentages for each category (e.g., housing 25%, giving 10%) and adjusting your spending accordingly.
No matter which approach you take, tracking is key. A simple spreadsheet (like Excel or Google Sheets) is a low-cost option but requires manual input. If you’re looking for something more dynamic, we suggest Monarch Money, a convenient tool that tracks spending on the go. Monarch can help you create a spending plan based on past expenses and set goals for future spending. It’s easy to use, and once your accounts are added, it helps streamline the process.
If you're interested in trying out Monarch, use this link to sign up for an extended 30-day free trial (GW Financial, Inc. will receive a credit for each person who signs up). To learn how to use Monarch Money, please visit the Getting Started Guide.
Step Two: Review Your Spending
Creating a spending plan is only half the battle—regularly reviewing your spending is what keeps you on track. Reviewing your plan monthly with your partner (if applicable) and setting new goals helps ensure you’re aligned with your financial priorities. Current clients can even give GW Financial access to their Monarch accounts, so we can help monitor progress and make adjustments during regular meetings.
One helpful tool is the Thirty-Day Spending Review, which builds awareness of where your money is going. Over time, we form spending habits we don’t even notice. By tracking your spending for 30 days, you can identify patterns and areas ripe for reconsideration. Monarch makes this easy by compiling your expenses, or you can use traditional methods like importing bank statements into Excel or jotting down every expenditure in a pocket notebook. Learn more about how to start a Thirty-Day Spending Review here.
Step Three: Make Changes Where Needed
As you go through the Thirty-Day Spending Review, you’ll likely spot patterns that lead to adjustments. Often, spending is curbed simply by the inconvenience of tracking it or seeing just how much is spent on little luxuries each day. Over time, these small tweaks can lead to significant changes in your financial health.
Mindset Matters
Spending plans can feel restrictive if you have the wrong mindset. Just as a map doesn’t limit a hiker’s experience, but instead keeps them on course, a spending plan ensures your money goes where it’s needed most. Instead of saying, “I can’t afford to eat out,” try asking, “Does this fit my priorities?” Whether you’re focused on paying off debt or saving for a child’s 529 plan, keeping your big goals in mind helps guide your spending choices.
One handy tip is to write your financial goals on a post-it note and wrap it around your credit card. Every time you make a purchase, you’ll be reminded of your priorities. This small action can help keep you on track.
Spending Plans = Financial Freedom
Contrary to popular belief, having a spending plan can make you feel freer. When you know exactly where your money is going, you gain the power to say no to unnecessary expenses while enjoying freedom within your means. It’s not about restriction—it’s about giving yourself the tools to spend wisely and save for the things that truly matter.
Make It Rewarding
Spending doesn’t have to be all work and no play. Set goals that come with rewards. Did you stick to your plan this month? Set aside $10 towards a larger purchase. Over time, that savings can add up to something fun, like a fancy night out or a new golf club.
Final Thoughts
A financial plan can’t make progress unless you’re actively involved in how you spend your money. If you’re ready to take control, try the Thirty-Day Spending Review and start planning today. You can even download our free printable to help get you started!
Additionally, we're offering a free copy of Making Sense on the Dollar to help you dive deeper into your financial journey. If you're interested, reach out to us today!
Curious about how we can help you navigate your financial goals? Schedule a Getting Acquainted Call with us.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by GW Financial, Inc. to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2024 GW Financial, Inc.