Does the word “budget” spark anxiety? Try creating a “spending plan” instead, one that has a similar goal to help you understand your money and where it goes.

Many of us focus on income and bills. While these are important, we need to gain an understanding of how our money moves, what parts really matter, and how that knowledge can help us better operate in our lives.

Healthy spending

When you create a spending plan, you can understand how much money you have, how much you earn each month, and how much you need to spend – all to move you toward positive financial health.

The entire process of creating a spending plan can be broken down into steps that can help you become more money aware.

Step 1: Spend on yourself

This may be surprising, but when creating a spending plan, it is important to plan to pay yourself first. That is, include the accounts that will be the foundation of your future success.

These include:

• Your goals: These might include getting an apartment, buying or renting a home, taking classes or going to college.
• Emergency savings: Plan to add a little each month to build an ideal savings of 3-6 months of living expenses.
• Investment accounts: Many employers offer 401(k) plans or other planned opportunities to save for retirement. It is easier to put a modest amount of money away in your 20s versus playing catch up in your 40s or 50s.

Step 2: Plan your fixed spending

We all have expenses or bills that stay the same each month, such as rent, mortgage, car payments or subscription services. In addition to monthly fixed expenses, be sure to include semi-annual spending such as car insurance or professional dues.

Step 3: Plan your variable spending

Next, list your spending for needed items with prices that change, such as food, gas, utilities, or entertainment.

Step 4: Plan your casual spending

Here, list your average spending for birthday gifts, lunches with friends, or other extras such as hobbies or an occasional collectible or video game.

Step 5: List your income

It is important to list your net income. That is the amount you actually take home. Your net income already has taxes and other monies taken out. It’s the amount of money deposited into your bank account from your employer or that you pay yourself, if you are a small business owner. For the purposes of this spending plan, net income is your true income.

Step 6: Compare your actual spending to your spending plan

For the first month, simply track your spending. At the end of the month, compare your actual spending with your spending plan. Getting a real picture of how much money you actually spend each month lets you see opportunities for adjustments.

Setting a spending plan can help you reset how you behave with your money because it gives you clearer perspectives, increased awareness, and more control of your spending. Before you know it, your planning and tracking will pay off!