6 Steps To Establishing A Spending & Savings Plan

To create a plan to reach personal financial goals that will reflect your values and allow you to live in a comfortable manner, you want to understand what you’re currently spending your money on, what you can realistically afford to spend, and how these align with your priorities.

Using the Spending and Saving Tool from America Saves is a great way to get a clear picture of your household’s finances. Simple, yet highly effective and enlightening are some of the comments we’ve heard from savers who have already used this tool.

So, let’s look at the steps involved with the Spending and Saving Tool. We’re pretty sure you’re going to feel a lot more confident about your finances once you’ve gone through these steps.

We recommend working with as detailed and accurate information as you can in order for it to be most helpful.

Step #1: Collect All Needed Documents and Information

Before getting started with the Spending and Saving Tool gather up all the following documents and information for ease of completion. We suggest collecting three months’ worth of the following:

1. Paystubs (You may also want to refer to last year’s W-2)
2. 1099s – for freelance or gig workers
3. Bank or credit union statements – may have to print them from your online account
4. Mortgage statements or rent bills
5. Household bills including utilities, garbage, phone or cell phone, internet provider
6. Credit card bills
7. Other loan statements – auto, student loans
8. Insurance premiums – auto, life, health, renter’s or home (if not included in mortgage)
9. Streaming service and subscription bills

With all this information in hand, now you’re ready to begin filling out the spreadsheet.

Step #2: Calculate Your Income

How much income do you bring home each month? How many times each month are you paid? If you’re paid regularly through paychecks from an employer, use your net income, that is the amount of money you have after taxes (federal income, state income, FICA) are taken out.

If you are self-employed, work freelance or perform gig work we suggest using the lowest monthly income you’ve had over the past year as your baseline income. You will also want to account for self-employment taxes when estimating your monthly income from any of these sources.

Be sure to include child support, alimony, Social Security, or investment income.

Add up all these sources of income to get your total monthly income. You may be surprised at how much money you bring home each month.

Step #3: Track Your Expenses 

Do you get to the end of the month and think, “How did I spend so much money this month?” That’s a common refrain.  Tracking your spending is a great way to find out exactly where your money goes. Those streaming services that you rarely watch may not seem like a big deal until you add up the $9.99 monthly charges – over a year that’s $120. 

Tracking ALL of your expenses can help pinpoint areas you may be overspending in and help identify areas where you can make cost-effective cuts.

• Let’s start with housing, which for many people is their biggest monthly expense. In this category include your mortgage or rent, renter’s or homeowner insurance (if this isn’t in your mortgage payment), utility bills such as electricity, gas, water, garbage collection, internet services, and cell phone service.
• Next is food. Here you want to include groceries, eating out, pet food, household supplies, and toiletries.
• In the transportation category include car loan, gas, commuting costs such as parking and/or public transportation. And of course, you want to count car maintenance and repair bills. While many people use an emergency savings fund for these expenses, it’s still helpful to track them so you have an idea of how much to set aside in savings. 
• For medical expenses include health insurance premiums, out of pocket expenses such as office visit copays and deductibles, and prescriptions.
• In the social category, calculate money spent on movies, concerts, other special events; clothing, club memberships, travel, and discretionary spending.
• While it may seem easier to label a lot of expenses as miscellaneous, we suggest limiting that practice so that you really know where you’re spending your money. Expenses such as student loan payments, credit card balance payments, child support, alimony and pet care do fall into this category.
• An area we call "adulting” includes things like life insurance premiums, extra principal payments on mortgage and auto loans, extra payments on existing credit card debt, and charitable contributions.
• Of course, we don’t want to forget savings. Look at how much you are contributing to your retirement accounts both through work and on your own. Add up how much you are depositing into your emergency savings accounts, and into accounts for other goals such as a home down payment, vacation, or education. You also want to include money you invest outside of retirement accounts.

Detailing your income and expenses in such a manner really helps give you that clear picture of where you are spending and saving. Now, onto the next step.

Step #4: Set Your Financial Goals

Information is power. Look at your present financial situation, and you can see where you’ve spent money and how much you’ve saved. You have a complete picture of your finances and can decide what, if any, changes you want to make.

Ask yourself if your spending and saving patterns are in line with your values and how you want to live. What is most important to you right now? Do you have more debt than makes you comfortable? Is home ownership something that you really want to take on in the next year or two?

Draw a picture in your mind of what your ideal life looks like and decide if your current spending and saving patterns support that picture. This is all about what you want and how comfortable you are with your financial picture. 

Step #5: Make a Plan to Achieve Your Financial Goals

With your goals set now you need to decide what steps to take to achieve these goals. If you want to save more money toward a new or existing goal:

• Can you reduce spending to save more money? Or
• Can you increase your income?

Let’s look at the first option of reducing spending. You’ve just outlined where all your money is spent each month. Are there areas in your budget, such as eating out or subscription services, where you can cut back? What expenses are you realistically able to reduce? If your budget just doesn’t have any more room to cut, which is the case for many people, then maybe you want to explore ways to increase your income.

Some options to consider to increase your income:

• Ask for a raise at your current job.
• Look for a better paying job.
• Get trained in new skills that will allow you to earn more money in your chosen field.
• Find a part time or gig economy job that works with your schedule.

And maybe you can do a little of both. Perhaps there are some areas in your budget, like clothing, where you can reduce spending, while also taking a part time job, even temporarily.

Everyone’s situation is different and only you can decide if any of these options are viable for you and your family. This isn’t the time to compare yourself to others.

Step #6: Sticking to Your Plan

With your plan now set you want to set yourself up for success. Follow these easy steps:

1. Set up automatic saving so that you don’t have to remember to make your regular saving deposits. Once you have your automatic system in place, you will save without even having to think about. Do remember to look periodically at your saving account balance so you can see the balance growing!
2. Reassess and adjust your plan whenever you have life changes such as marriage, a new baby, a move, or a promotion. During any of these types of circumstances you may want to increase your automatic saving amount or alter how much money you are spending in certain areas.
3. Looking for ongoing encouragement to reach your saving goal? Take the America Saves Pledge and let America Saves be your accountability partner. You’ll receive easy-to-use and relatable tips, resources and nudges designed to help you stay on track toward any of your saving goals.

Give yourself credit for working through all of these steps. You’re on your way now to living out your plan for your financial goals!