Spending planning – how to approach saving wisely?

Expense planning is the basis of a well-organized home budget. By taking control of our expenses, we can protect ourselves from financial problems without much difficulty. But how to do this in practice?

What exactly is a home budget?

A household budget is nothing else than the financial resources we have within the household. This type of budget is usually planned for a month or a year. The most important thing is to distinguish between income and expenses, which will allow us to monitor them and then make it easier to verify the flow of our household funds in a given period.

According to Michał Szafrański – an expert in the field of finance and author of the book “Financial Ninja” – a home budget is simply “planning for the future”.

Budgeting can be a tip for saving money if you know how to go about it. However, anyone who has ever dealt with home finances knows perfectly well that it is not that simple.

Where to plan your family budget?

This is one of the hardest questions because there really is no single answer to it. When we planning a household budget, we must test various options ourselves and choose the one that will work best for us.

There are many options for planning your home budget, including:

• writing everything down in a notebook,
• writing out individual data in a spreadsheet,
• using mobile applications intended for this purpose, e.g. Microsoft money,
• mobile banking applications (for some banks).

An indirect solution is to purchase a planner as a digital product. You can print it yourself depending on your needs – only selecting individual pages so as not to waste paper. In addition, let’s also pay attention to the fact that such planners very often have the option of completing them directly in the file, so we can completely resign from printing them and only keep its mobile version.

However, if we still have problems with keeping a household budget (and therefore want to start planning our expenses), we can find individual pages of the planner for printing online. There are a lot of bloggers sharing ready-made files that we download to our computer and then print. In such a template, we can easily plan the household budget and individual expenses.

In recent years, interest in this type of solutions has been growing, probably due to the prevailing trend of minimalism and living according to the “zero waste” principle.

When searching the Internet to find spending planning templates that will meet our expectations, it is also worth visiting Pinterest. It is a mine of this type of materials, which means that everyone can find something for themselves.

Where to start planning?

Contrary to appearances, budget planning is not as complicated as it may seem at first. Even in the case of people who have never dealt with it seriously before and have only basic knowledge about finance. Each of us at some point in our lives is forced to start planning our expenses.

The foundation of our home budget should be regular control of individual expenses. To do this, it is best to start by separating your monthly expenses into fixed and variable (i.e. irregular) expenses, which depend on various factors. Each of us has different needs, and therefore, the amounts we have to spend on various expenses also differ, so they should all be included in our budget.

Writing down your expenses also helps you become aware of your own shopping habits. In this case, a good option may be to collect all receipts and invoices, even when making the smallest purchases. A list of expenses from the last few months is a good introduction to planning your home budget.

However, before we start writing down our expenses, it is worth preparing a short summary of our earnings. For this purpose, it is best to take into account the salary we received in the last month. Let’s also remember to include the amount that (according to our predictions) will soon be transferred to our bank account.

Planning the household budget should also assume the division of income into real income, of which we are certain, and predicted income, which may ultimately differ significantly from our initial estimates.

Good practices when planning a budget also include defining a specific goal for which we will save. It is often an additional motivational stimulus that encourages the efforts put into the entire process of saving money.

It may also be helpful when we are considering spending the saved amount (or part of it) on something that was not planned. Especially at this moment.

Household budget and emergencies

However, we do not always have to have specific goals that we want to achieve with the help of savings. We can allocate additional funds to the emergency fund. We can check its effectiveness when any unexpected expenses arise.

When talking about unplanned expenses, they include the following:

• car breakdown,
• failure of an everyday device (e.g. washing machine),
• business trip,
• doctor visit or treatment,
• family party.

An emergency fund is an option worth considering, if only because this type of burden most often happens when our financial situation is not the best. Thanks to such a fund, which is intended for extra-curricular expenses, we can feel relatively safe in the event of a crisis. This gives us the feeling that our finances are under control.

Another way to deal with various types of unexpected incidents is through a savings account. We can store additional funds there, which will regularly increase depending on the applicable interest rate (calculated annually). More and more banks also allow you to define your own name for such an account, so you can check at any time how well you are saving money for a given purpose (if you have several of them).

A deposit works similarly, except that we set it up for a specific period of time and we cannot add anything to the amount that was paid at the beginning. It is also impossible to withdraw the money during the loan without losing interest. In this case, a specific annual interest rate also applies.

What do we include in fixed expenses?

Fixed expenses are those that we incur regularly every month. Basically, these will be all recurring fees.

Fixed expenses include:

• apartment rent,
• bills,
• loan installments,
• fuel,
• bus tickets,
• grocery shopping,
• tuition,
• activities,
• sports tickets,
• costs spent on cultural life (e.g. cinema).

After preparing such an indicative list of fixed expenses, it would be good to compare it with the amount of our monthly earnings. At this point, the planned fixed expenses should amount to max. 60% of our salary.

Variable expenses – what are they?

Variable expenses are irregular costs that we incur once or at certain intervals – generally, they are simply unsystematic expenses. It should be noted that irregular expenses are usually estimated on an annual basis.

Irregular expenses include:

• occasional gifts (birthdays, holidays, etc.),
• clothes and footwear,
• holidays or school trips,
• doctor visits/medications,
• repair of apartments,
• car insurance,
• extra courses,
• car review.

It is worth adding here that the amount we get after adding all possible irregular expenses (in a given year) will be the amount we should be able to save during that year.

It is best to divide irregular expenses into individual months so that the monthly budget is not too strained.

How to control expenses in your home budget?

Taking control of your home budget can help you regain peace of mind. I guess each of us prefers mental comfort instead of wondering how we can reduce our monthly budget while paying all the necessary fees.

As we mentioned earlier, one of the most important issues regarding the home budget is constant monitoring of expenses. This will allow us to overcome the tendency to waste money.

The consequences of such actions can be painful, especially when we are unable to pay for something, which may lead to debts. It sometimes happens that, as a result, we are forced to take drastic steps, such as taking out a loan or even a quick loan.

To effectively control your expenses, consider the following options:

• systematically recording all expenses during the month (which will allow us to estimate where we can reduce costs),
• specifying needs and meticulously following previously agreed rules (purchasing what is necessary),
• planning a budget before the beginning of the month (or year) or as soon as it begins (notes from the previous month may be helpful for comparison),
• observing and verifying your own weaknesses (which can be very helpful in limiting unnecessary expenses).

It is worth adding here that the best results are achieved by combining the above methods.

However, let’s not forget that controlling expenses has more advantages. It is also a way to exercise willpower. Especially when we think that purchasing a given product is the best possible solution in the current situation, e.g. due to an extremely promotional price. We must remember that even if we do not need savings at the moment, such a moment will come one day, and then we will thank ourselves for our prudence and forward-looking thinking.

Savings mistakes – how to avoid them?

Saving money only brings results when we approach it properly. No matter how hard we try, we all make mistakes sometimes. Especially if we are not experts in a given field. Therefore, if we want to avoid saving mistakes, we must first become familiar with them.

Here is a list of the most common mistakes made when saving:

• We spend our savings

Even if we manage to save some money, after some time we decide to spend it. The reason may be a great promotion for a product that we were planning to buy, although not necessarily right now. That is why persistence and determination are so important here – thanks to them we can patiently persevere in the decision to actually save, without damaging them due to momentary weakness.

• We don’t actually save

We think we have already made some steps towards saving, but in practice it looks a bit different. We only started preparing for it theoretically. We haven’t developed a plan for our household budget, nor do we know what we actually spend most of our money on. Not to mention the fact that we didn’t actually save a penny.

An important step is to realize that if we really want to start saving, regularly saving even small amounts is a must.

• We want to multiply savings as quickly as possible

Some people approach the topic of saving too abruptly and impatiently, e.g. by buying cryptocurrencies or transferring money to other currency markets. The end of such actions is often disappointing, especially when, instead of multiplying the saved funds, we simply lose them. Let’s not forget that in some matters haste is definitely not advisable.

• The assumption that we have no way to save

Overall, the problem most likely lies in the fact that our expenses are disproportionately high in relation to our earnings. Another possibility is that the salary is simply too low compared to the cost of living and individual expenses. After assessing which of these problems concerns us, we can consider potential solutions. These may include, for example: changing jobs, applying for a raise, reducing expenses or finding additional orders in the near future.

When planning a budget, it is worth considering our personal finances carefully, asking ourselves: what can you give up in a given month?

It may turn out that we are paying unnecessarily for something that we do not even use, e.g. in the case of an automatically renewable subscription.

• We lack a saving goal

This issue is somehow related to the first point, i.e. spending the money saved earlier. The lack of a specific goal for which we want to spend our savings increases the likelihood that we will waste the additional budget on something that is not necessary at the moment. Very quickly, however, we may begin to regret the loss of the funds we have saved due to temporary weakness.

• Our money ‘disappears’

Sometimes there are situations when we really have no idea what happened to our funds. This happens when our home budget has not been properly planned. Cash leakage occurs, for example, as a result of various random situations that cause unforeseen expenses.

To avoid a crisis situation in our home budget, we do not need to do anything extraordinary that would be beyond our capabilities. To start with, you just need to control your expenses so that you don’t have to stress about your budget at the end of the month.

Summary

Expense planning is the process of determining what expenses we will incur at a specific time. This also applies to what amounts will be allocated for them.

It is worth approaching this task in a thoughtful and organized way. Thanks to this, you will be able to control your finances and avoid unnecessary debt.

Want to create your own savings plan? To do this, first read our post: Money saving plan – how to have more money?

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