Blog post

Spending Plan vs a Budget, what's the difference and why does it matter?

12th June 2022

It’s time to ditch the “B” word and create a spending plan instead

If you don’t like to Budget, or find it hard to stick to one, you’re not alone. In our experience, a lot of people don’t like to think about budgeting as the thought alone often creates a feeling of restriction or limitation. Actually having to stick to one is worse! Almost like a diet for your spending.

We get it! That’s why we’re not a fan of the B word here.

So if you aren’t a fan of the idea of creating a budget, don’t. Instead, you can make a spending plan.

What’s the difference between a spending plan and a budget? Well, a budget looks at past spending as a way to work out the categories and limits for your future spending. A spending plan on the other hand is future focused. It allows you to choose what you must spend money on each month. You have the freedom and control over how you allocate your spending in accordance with your priorities.

Think of a ‘spending plan’ as a roadmap for how you’ll spend your money, rather than a list of do’s and dont’s that restrict your spending.

It’s not restrictive. It’s empowering because it’s a plan you create and it works on the principle of “ Tell your money where to go, or you’ll wonder where it went!”

A spending plan is all about getting your priorities right.

It’s sitting down and looking at the funds you have coming in and prioritizing what has to go out, where and when.

It requires you to review your finances and upcoming expenses, plan for any unexpected expenses and allocate money towards your top priorities and goals.

The steps are:

  1. Work out the income you have coming in for the next month.
  2. Pay all priorities first (you know all those must-do adulting costs… bills, rent, mortgage, phone, insurance etc)
  3. Set aside your regular savings towards your goals.
  4. Set aside any unexpected expenses (emergency bucket)
  5. Allow for discretionary spending (entertainment, clothes, shopping, eating out, sports, social events). This is left to last, as this where we can cut back if necessary, depending on how much money we have left to allocate in our spending plan.

As a side note, it can be really helpful to keep your savings separate from your day to day spending account. Within Blossom you can set up a separate place to plant your savings and establish a regular automatic direct debit to deposit and help them grow.

As you put your spending plan together, don’t think of it as final or permanent. Unlike a budget, which is often a set and forget strategy. A spending plan should change each month. Ideally you should review your spending plan at the beginning of each month, or just before pay day, then review your upcoming priorities and amend the plan accordingly.

Perhaps you have more money coming in one month, so you can increase how much you save, or spend on other priorities or use it for fun. You’ll also want to revisit your spending plan if there’s a major change in your must-haves. Maybe your rent increases, or you decide to take a course or sign up with a personal trainer for 3 months. Make adjustments as you go so you have the most accurate info on where you’re spending your money.

Just remember that your spending plan isn’t a rulebook telling you what you can and can’t do. It’s not restrictive at all. It’s you telling your money where and how it should be spent so that it flows towards your priorities and goals.

You’ve got this!