Know your spending and set your financial goals | by Alex Artenie | Apr, 2022

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Do not save what is left after spending, but spend what is left after saving Warren Buffet

Know your spending. Picture composed by the author using Canva

Spending is the next aspect of personal finance to discuss after earning. When you earn, you also spend. In fact, as discussed in the previous postyou earn so you can spend.

That is, while earning is the starting point of personal finance, it is not its end. You have needs and wants in your day-to-day-life to attend to. Although you can be earning enough to cover all your needs and even fulfill some of your wants, many people, unfortunately, do not have the luxury.

As a result, you have to be systematic in your spending. After all, you want to spend in such a way that you will be able to save and invest for the future. So, for that, you might want to develop a personal spending plan.

Save or Spend. Picture by frender on Canva

A personal spending plan, similar to a budgeting, is an outline of your cash inflow and cash outflow. It highlights your income and expenses — broken down into your needs and wants.

You should keep a personal spending plan for several reasons chief among which are: it helps you structure your finances by monitoring your spending patterns and automating your savings. With it, you can restrict your spending, live within your means, and far more easily and quickly achieve financial freedom.

To be effective, a personal spending plan must have some essential features.

Fashioned after the format of a traditional budget, it must be suited to your individual needs, while also flexible enough to incorporate important changes arising from time to time. Moreover, it must be so detailed that it includes information about every item you buy.

That way, it will help you optimally allocate your scarce resources to your important expenses and cross out irrelevant ones that can hold you back from achieving your core financial goals.

Also, a personal spending plan should be realistic. That is why it is recommended you record all your expenditures for at least a month or two before you attempt to create a comprehensive spending plan for them.

Finally, for a personal spending plan to be effective and complete, it must include sections for budgeting, banking, insurance, mortgage, credit management, and tax.

Set your financial goals. Picture by designer491 on Canva

In life, a man without goals is a man without direction. Ditto for personal finance. You should use your personal spending plan to develop and itemize your financial goals. Those goals can include funding your graduate education, buying a home, saving for emergency or vacation, spending on entertainment, and planning your savings and investing.

Having clear financial goals is helpful when creating a personal spending plan. It gives you clarity and makes it easier to work towards their fulfillment. Also, when creating your spending plan, you should consider vital monthly expenses such as food, rent, utilities, and wares.

Your emergency fund, made up of savings that can take care of at least three months of your expenses, is an important item to include in your personal spending plan too. An emergency fund can help hold you off credit card debt in case you lose your job or have a medical emergency.