Build Your Spending Plan

This is the fourth part of my series about creating a five year spending plan. You can go back and look at the other posts here…

Creating a Five Year Spending Plan

How to Take a Financial Snapshot

Financial Goal Setting

Now comes the technical part – how to get from where you are now to where you want to be.

wicker basket of vegetables
Needs are things such as food, not fancy magazines or nights out
Deciding needs

The first step in creating your spending plan is to have to look at what your spending on your needs will be over the next five years for each year. Defining needs may be the difficult part. It depends on how hard you want to work towards your financial goals. If you really want to pare things back you may want to have a look at my post about ‘Creating a Bare Bones Budget’. Alternatively check out this YouTube video by Frugal Queen in France. It may be that your current salary more than covers your needs. You have plenty of money left over each month which you’ve been frittering away on rubbish that you could easily do without. Alternatively you may be struggling to cover your essentials and get to the end of the month without going overdrawn.

hanging light bulb
We all have monthly bills, such as electricity to keep the lights on
Monthly commitments

You need to consider all of your regular monthly payments and decide firstly whether you need to keep paying them. For example, you will want to pay your mortgage otherwise you might lose your house. You will also want to pay your electricity bill or it will get cut off. There will be other regular expenditures which at first glance you might feel you need to pay, but have a really good think about it. Question everything.

Since I’ve been on the road to financial independence, in order to meet my spending plan goals, I’ve stopped my magazine subscriptions, dye my own hair, don’t go for any beauty treatments and have changed our grocery shopping to a cheaper store. Some of these things may be a step too far for you, but if you can’t find any slack in your budget you may need to go through your outgoings again and make some hard decisions.

green scale model car on brown pavement
Some costs only come once a year, but we know they are coming, such as car insurance
Infrequent expenditure

As well as your monthly commitments you will also have annual or infrequent expenses such as house insurance, car insurance, holidays and gifts. You’re going to have to look at how much these cost you every year and divide the amount into 12. Every month you will put aside that sum into a separate bank account or what you may have heard called a sinking fund. Then will that bill is due you should have the money there ready to pay for it. There won’t be any expensive months or cheap months. Every one should be the same.

How much do you have left to put towards your goals, such as saving for your first home?
Goal contributions

Once you’ve completed these first two steps you’ll be able to work out how much money you’ll have left over each month to put towards your financial goals. If it’s not as much as you’d like and won’t get you to where you want to be in five years’ time then you’re going to have to tighten your belt a bit more and cut some things from your budget.

If you’ve got more left over than you expected then you can either decide to accelerate your progress towards your goals or add back in some luxuries that you cut out. It might be that you just can’t find any surplus at all and in that case it’s going to be about increasing your income so that you do have some spare money to put towards your goals. Whether that’s getting a different job, a second job or creating a side hustle, there are lots of options out there.




November 21, 2021 at 11:19 pm

Great Summary Sam.

I love how you have been inclusive of people across a diverse range of situations, from those struggling to make ends meet, to those earning so much that they can fritter it away on ‘rubbish’.

Brilliant, succinct and straight to the point as always


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Financial Goal Setting

November 13, 2021

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