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Most of us realize intuitively that we can’t simply spend all that we want to spend.  But the idea of creating a budget seems complicated, and the thought of actually sticking to that budget feels restrictive. So how do we respond? With a Spending Plan.

A Spending Plan helps us manage our spending so that we control our money rather than our money controlling us. In practice, a Spending Plan looks like a budget – but in philosophy, it’s different.  While a budget tells us, “you can’t spend there because you don’t have the money,” a Spending Plan shows us where we can spend because we’ve planned for it.

Boundaries Create Freedom

There’s a story of an elementary school that was constructed next to a busy road. The school had a beautiful playground with lots of new equipment, but the kids were afraid to go out in the playground because of all the traffic. 

The principal noticed that during recess, all the kids stayed close to the building. So she had a fence constructed around the playground. The fence provided a boundary within which the children knew they were safe, and they began to use the entire playground during recess.

A Spending Plan acts in the same way – it provides a “boundary” within which we can spend freely, because we’ve planned for it and we know we have the money. We don’t have to worry about an expenditure, wondering if we can afford the payments and if we’ll be able to meet all our bills. Instead, we can spend on things that matter with confidence and peace. Far from being restrictive, a Spending Plan actually enables financial freedom by showing us the “safe zone”.

Additionally, a Spending Plan helps us to focus our spending on the things that are really important to us. If we’ve established our financial priorities, the Spending Plan really just helps us to achieve those priorities.

Getting Ready

A Spending Plan isn’t a “finger in the wind” with guesses as to how much you might spend in various areas. It doesn’t have to be complicated, but it does need to be accurate. Knowing this, how do you get started?

First, you’ll need records of your spending. If you have records over the past couple of months (such as credit card statements that show where the money was spent, bills, etc.), you’re in great shape.  If you don’t have good records, consider taking a month or more to document your spending as a starting point. You need these records in order to get a realistic starting point for your spending plan. If you need help starting a spending record, see our related article, How to Track and Categorize Spending. That article contains a sample Spending Record form that you can use as a template.

Next, you’ll need to know your priorities. That sounds self-evident, but most of us haven’t taken time to think through priorities in a way that helps us resolve conflicts. Is it more important to you that your spouse be able to stay home or that you send the kids to private schools (which may require two incomes)? More important to pursue a career that requires significant travel or more important to support the kids in sports or other activities? None of us can have or do everything we want! So we have to understand what’s most important. For help with this step, see our related article, Spending Priorities & Non-Negotiables.

Finally – but most importantly – start with prayer! As believers, we have access to a Resource that the average financial planner does not – we have the Holy Spirit available to guide us. Spend time in the Scriptures to learn God’s priorities for finances and time in prayer to learn his priorities specifically for you. As a starting point, check out our related article The 3 Big Ideas of Christian Stewardship.

With this as a context, let’s look at how to actually create a plan.

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Creating a

Spending Plan

The Spending Plan should reflect your spending patterns and categories. We’ll recommend a few general areas that most people would need to include, but feel free to drill down to specifics that make sense for you. As a starting point, you can download a Spending Plan Template at the bottom of this article.

Gross Income

Start the spending plan with your Gross Income, since this is your starting point for how much you have to spend. We recommend gross income rather than net income or take-home pay because gross income is the most inclusive and allows you to account for everything. If you choose to start with take-home pay, for example, you’ll be “hiding” deductions for things like retirement savings, health insurance premiums, etc., and won’t get a complete picture of your spending and savings.

The Spending Plan is a monthly document, so the gross income you record should be your monthly gross income. This will involve a little arithmetic if you get paid with any other frequency than monthly. Use the following table to calculate monthly gross income:

If you get paid…Then calculate monthly income as…
Twice a monthGross income * 2
WeeklyGross income * 52 / 12
Every Other weekGross income * 26 / 12

If you have income from more than one source (for example, if both spouses work), perform the calculation individually for each income source and then add the monthly incomes together.

Variable Incomes

If your paycheck varies (because of hourly pay, commissions, etc.), you’ll need to do some estimating here. The best place to start is to average a number of past paychecks together to determine your average gross income per paycheck (and then apply the calculation above based on pay frequency).  If your income is seasonal, you’ll need to take an average of paychecks from different seasons to get a realistic picture.

One note: the nature of averaging means that some months, you’re not going to make as much as your average. If you use the average for your Gross Income starting point, you’ll need to be aware of this and make sure you have a reserve to cover the months where your pay doesn’t meet the average. A good idea here is to estimate monthly income conservatively, a bit below your average (or, if seasonal, use a number closer to the off-season than to the peak season). Put any excess in savings to cover the lower months. This way, your income in most months will cover the expenses that you include in your plan.

Lifestyle Expenses

Lifestyle Expenses includes everything you do with money other than giving, saving, and debt retirement. Among other things, this includes all money deducted from your paycheck, including taxes and optional deductions.

Taxes

The Taxes section includes all income-related taxes, including federal, state, and local income taxes as well as Social Security and Medicare taxes. If you have other mandatory deductions such as union dues, include those here as well. You’ll need to make the same frequency adjustments that you did for income if you’re paid on a frequency other than monthly.

Housing

Housing includes all expenses directly related to the dwelling, whether you own a house or rent an apartment or house. This includes, if applicable, property taxes and homeowners’ insurance (including private mortgage insurance or PMI). Usually these are part of the mortgage payment; if not, you’ll need to take the amounts you pay and convert them to monthly amounts.

Include utilities in this group, other than entertainment-related costs such as cable TV or streaming services. Include internet and cell phone here (even though cell phone is not technically related to the dwelling). If you bundle internet/cell phone with a TV service, separate out the TV service for inclusion in the Entertainment group.

If you own your home, include expenses related to upkeep of the dwelling, including home maintenance or improvement costs and services such as landscaping, snow removal, etc. Maintenance costs can wreck spending plans, as they’re sometimes unpredictable and can be expensive depending on the work required. Don’t worry about accounting for catastrophic maintenance costs here – you’ll be saving for those as part of the Saving category in your plan.

Auto & Transportation

This section should include all expenses related to your car(s) and any public transportation you take on a regular basis. Car payments, maintenance and repairs, fuel, and auto insurance should be included here.

One item that’s easy to overlook is automobile maintenance. All cars need some maintenance, some more than others. At the most basic level, there’s regular oil changes. Then there are tires and other parts that wear out, and ultimately potentially major repairs. This amount will be a bit of a guesstimate – but if you don’t plan for it, you’ll end up either using savings or going into debt to pay for these services.  If you have good maintenance records for your car, use those as input.

Insurance

Include here all types of insurance other than home and auto (which are included in their own sections above). This encompasses medical, life, and other types of insurance, including premiums deducted from your paycheck. (There is no need to account for the employer’s portion of your insurance premiums.)

Household

The household category includes general living expenses that aren’t included in Housing. This incorporates purchases such as appliances, electronics, furniture and tools, as well as childcare and children’s activities.

Omit entertainment-related expenses and also Professional Services from this group; we’ll discuss those shortly.

One often-overlooked expense area here is memberships and subscriptions. These can be forgotten easily because they’re typically automatically deducted from a bank account or charged to a credit card without any conscious action on your part. Include here things like gym memberships, purchasing memberships, website subscriptions, etc.

A real budget-buster in this area is Gifts. Most gifts can be planned for in advance because they’re repetitive or have to do with major events such as weddings. We recommend making a list of the people you buy gifts for, how much you typically spend on each, and when you buy them. Total up the amounts and divide by 12 and you’ll have the amount you need to include in your Spending Plan for gifts.

Professional Services

This category group includes medical, legal, vet, counseling, etc.

For simplicity, we recommend including contributions to a Health Savings Account (HSA), Health Care Account (HCA), etc., in this category. As you pay expenses out of those accounts, you don’t need to track those separately, since you’ve already included the deductions as a whole.

Entertainment

Include here anything related to events (movies, sports, etc.), eating out, subscriptions related to entertainment (such as app fees, TV/streaming services, etc.), and hobbies.

The item that often busts this budget is vacations. These are typically large expenses that happen only once or twice a year, making them a bit hard to estimate. Since these are one-time or two-time expenses, consider allocating one-time income (such as an annual bonus or tax refund) to this category. If your one-time income isn’t enough to cover vacation expense, you’ll need to allocate a monthly amount to make up the difference.

Giving

In this section, include any amounts you give on a regular basis, to church or other organizations. Note that this is different from gifts that you buy for others on occasions such as birthdays, etc. Generally, this would entail giving to charities. If you give additional amounts seasonally, consider including a monthly amount for a “Generosity Fund” to be used to cover those gifts.

Savings

Include here any amounts that you set aside for various types of savings. This would include short-term savings, such as an emergency fund, and longer-term savings, such as setting aside money for children’s college or for retirement. Be sure to identify here any amounts deducted out of your paycheck for retirement savings.

Debt Reduction

Include in this section regular payments on credit cards or other loans. Leave out mortgage and car payments – these are accounted for in the Housing and Auto sections, respectively. All other loans, including loans from family and friends, should be included here.

We recommend starting by identifying the minimum payments required on each loan or credit card, and then adding an extra amount for accelerated debt retirement, targeting one specific account for that extra payment.

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Does Your Spending Plan work?

Once you have an initial plan created, the next obvious question is, Does it work? Are there some ways you can evaluate how good the plan is? A good spending plan will have the following characteristics:

It’s balanced

The first and most obvious requirement is that the plan has to be balanced. In other words, all the expenses have to fit within the gross income. If they don’t, the plan doesn’t work and you’ll find yourself going deeper and deeper into debt.

It’s realistic

A balanced spending plan is great – unless it doesn’t reflect your real spending. It can take a couple of months to figure this out (which is the reason we recommend starting with at least a month’s worth of records). We’ve mentioned a couple of plan-busters in the course of this article – as a reminder, they include:

  • Subscriptions and other automatic payments, which can be forgotten
  • Gifts, which occur only occasionally and may not show up every month
  • Car/home maintenance – items that will happen, but won’t happen every month
  • Vet bills – again, these don’t occur regularly, but they can be large when they happen
  • Vacations – infrequent but typically large expenditures

Be sure to account for these and other items that either happen automatically without your intervention or occur on irregular or infrequent schedules.

It reflects your priorities

A spending plan gives you a chance to prioritize your finances so that you’re spending on the things that are really important to you. For this to be effective, you have to know what your priorities are and make sure that your plan reflects them. If family vacations are important, make sure they’re included in the plan. If it’s important that one spouse stay at home, make sure the plan works with one income.  You get the idea.

It reflects Biblical wisdom

This one isn’t last because it’s least important – it’s last because it’s hardest. Other than prescribing the tithe for giving, Scripture doesn’t give us directives regarding how to allocate resources. So how do we know if we’re on track?

Many Christian stewardship experts recommend the 10-10-80 plan as an overall guide to keep finances on track. This isn’t a hard-and-fast rule, but it provides a good starting point.  The plan includes:

  • 10% of gross income for giving
  • 10% for savings (of all types – including debt retirement)
  • 80% for lifestyle expenses (everything else, including taxes)

Saving and debt retirement are included together because they have the same effect on our net worth: setting aside a dollar in savings has the same effect as using that dollar to pay down debt. Some folks with significant debt may need to allocate more than 10% of gross income to savings and may need to adjust lifestyle expenses accordingly. Others may be in a position to practice generosity beyond the tithe.

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Correcting Course

The Spending Plan should serve you, not the other way around. The plan should reflect reality but reality changes at times. While it’s important to be disciplined in following the plan (this is where real freedom lies), it’s equally important to keep the plan current with your priorities. 

Sometimes, an event drives a change in priorities. Your first child is born, and you decide to keep one spouse at home, reducing your income. Your child reaches school age, and it’s no longer necessary to set aside so much money for child care. A job change results in significantly more income to allocate.

Other times, decisions drive changes in priorities. You decide to send your child to private school, requiring significant additional savings. You choose to live in a larger house to support a growing family, resulting in increased housing expenses.

Major changes like this should be reflected in your spending plan. The spending plan is a living document, not something set in stone.

The Spending Record

Sometimes, change creeps up on you slowly. Without realizing it, you begin spending more money eating out because of increasing job demands. Inflation hits the grocery and fuel budgets. Your aging car begins to require more maintenance and repairs.

Your best “early warning” system to detect these changes is a Spending Record. The spending record will help you track your expenses in all areas. As you compare your spending record to your spending plan, you discover areas where spending has begun to outstrip the plan. Without a spending record, you might not realize this. Month by month, you may be staying afloat – without realizing that the money you should be saving for gifts or car maintenance is being used for eating out. If your only tracking system is your account balance, you won’t know if you’re really staying within the boundaries.

To go back to our playground story, this is a little like not realizing you’re playing in the road until you get hit by a car.

The fence that the Spending Record provides can keep you out of danger – but only if you’re keeping good records and regularly comparing what you’re actually spending to your plan.

Think of the Spending Plan as a map. It gives you the directions to get from where you are to where you want to be, financially. The Spending Record is your GPS. It tells you if you’ve made a wrong turn and helps you identify the way to get back on course. The map tells you where you should be; the GPS tells you where you are. You need both.

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Get Started

in Three Steps

Our finances won’t fix themselves. They won’t reflect Biblical wisdom and our core priorities naturally. Instead, they’ll reflect the effect of marketing, the pressure of peers, the current of the culture.

A popular definition of insanity is, Doing the same thing over and over and expecting different results. If you’re looking to get started on a different path, here are some steps you can take:

  1. Start tracking and categorizing your expenses. See our related article below for some additional tips and a Spending Record template. If you have historical data from receipts, credit card statements, etc., then start a spending record retroactively, using that information.
  2. Pray and think through your priorities. If you’re married, do this with your spouse! You have to be on the same page in order to come up with a workable spending plan.
  3. With at least a month’s worth of spending recorded and with an agreed-on list of major priorities, create a draft Spending Plan.

Then, earn and spend prayerfully! Keep your Spending Record up to date and compare it regularly with your Spending Plan. Make adjustments as you need to. Celebrate what God provides, confess when you make mistakes (and you will!), and commit your spending to God.

Financial freedom isn’t an overnight achievement; like anything worthwhile, it takes work. And it takes a plan.

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Free Resource

Good Sense Spending Plan

Need a starting point for your Spending Plan? Download our spreadsheet to help you get started. Built-in calculations help you see the big picture and balance your Plan.