The key way to take control of spending is to develop a spending plan. Spending plan? Yes, spending plan. It’s another way … a more positive way of referring to a “budget.”

According to the Merriam-Webster Dictionary, “plan” means “a set of actions that have been thought of as a way to do or achieve something.” A spending plan is a method for achieving your financial goals. It’s a plan so it’s flexible and can change as life changes.

So how do you create a spending plan? It’s easier than you think. Here are 5 steps to create a spending plan in order to take control of spending. For those who prefer a video, click here.


 1- Determine your financial goals or lifestyle you want to achieve.

 How do you envision your life? Do you want to be free from credit card debt? Do you want to buy a home or vacation home? Do you want to take a year sabbatical from working?

By knowing your end – your target goal, you can stay focused on what you are trying to achieve. Think of it this way, when going on vacation do you just get in your car and go? No, you usually have a destination in mind – same thing with developing a spending plan. You need to know where you are going – what you are trying to achieve.


2- Know your income.

What is your take home pay – money after taxes? This amount is the money you have available to spend. Keep in mind, some of your money is used for payroll deductions such as healthcare and life insurance. Take a look at your paycheck to determine how much money you really have available after taxes. If your career is commission-based, estimate your income on the lower-end – it’s better to be conservative when developing your spending plan.


3- Estimate how much you spend annually.

Look at your previous year-end credit card statements and bank statements. If you use Quicken, you can easily run a report. Make sure you have an expense line for contributions to your savings (i.e., pay yourself first). Keep it simple and use these 10 categories when gathering your information:

 Home (mortgage/rent, HOA fees, taxes, insurance, utilities)

Transportation (car payment, maintenance, insurance, gas, public transportation)

Food (dining out, groceries)

Medical (co-pays, expenses not covered by insurance)

Gifts (charity, birthdays, anniversaries, holidays)

Entertainment (vacation, movies, concerts)

Personal care(cosmetic, clothing, dry cleaning)

Dependent-care (child, elderly parent, pet)

Miscellaneous expenses (bank fees, job search, non-reimbursable business expenses)

Savings (emergency reserve, short-term financial goals, mid-term financial goals, retirement)


4- Identify which expenses can be reduced (and your “savings” category is not an option).

It’s hard to separate needs from wants but it is necessary if you want to take control of spending. When reviewing each expense line, ask yourself “Is there a way to reduce this expense?” If yes, then determine how much you can reduce it. Most people intuitively know where they need to cut spending, but seeing numbers in front of you can validate it. Key areas to look at include food/dining out, clothing and entertainment.

The total of how much you spend in these 10 categories should be equal to or less than your take-home pay (the money you really have available to spend). If you’re spending more than your take-home pay, then you are living beyond your means. Keep pushing to find ways to reduce spending.


5- Track your spending.

Compare how much you are actually spending with your spending plan at a minimum every three months – March 30, June 30, September 30 and December 31. If you find yourself overspending, then adjust what you are doing.

For expenses you are actively reducing, monitor your progress using an app on your smartphone. If you have several expense categories you need to reduce, start off focusing on only one. Once you have that spending under control then tackle the next one. Yes, it’s a slower process but it will keep you motivated by not drastically changing your spending habits all at one time.

It’s never too early or too late to take control of spending. By following the above 5 steps, you can achieve the lifestyle you envision. Be patient with yourself and stay focused.


Niv PersaudNiv Persaud, CFP®, CDFA™, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Her firm bridges the gap between financial planning and coaching. As a Transition Consultant, she offers sage advice in all aspects of life – financial, personal and professional. Her services include spending plan development, divorce financial review, life strategy and professional progression. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me’.”