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Spending Plan vs. Budget: What’s the Difference?


You might not feel like you have your money all figured out yet, but your palms are itching for some financial control. You’re here! You’re ready to make a budget. Or a spending plan. Or wait, are they different? Which one is going to get you closer to your financial goals?

Spending Plan vs. Budget

Sure, you’ve heard of a budget—and have the accompanying knee-jerk reaction too. The shudder. The wince. The belt tightening. But here’s the thing, a budget and a spending plan are the same thing. Budgets get a bad rap, but that’s what they are: a plan for spending money. You’re taking the money you have, right now, and saying where it should go. 

In this article, we use the word spending plan and budget interchangeably, because they’re the same thing!

How Do I Make a Spending Plan? 

 1. Make a List of Current Expenses

First things first, answer this: how much does a month of your life cost? The bills, but also the fun stuff too. Make a list! You can write this list down on a piece of paper (or use the free trial we offer in YNAB to make the rest of the steps a little easier).

Look through this list to jog your memory. It’s not exhaustive but it will give you a solid starting point:

  • Mortgage/rent
  • Student loan
  • Car payment
  • Electric bill
  • Water bill
  • Other utilities (trash service, gas bill)
  • Internet
  • Groceries
  • Transportation costs (gas, bus pass, tolls, parking)
  • Auto maintenance (oil changes, new tires)
  • Car registration (license, tab renewal)
  • Auto insurance
  • Home maintenance
  • Renter/home insurance
  • Medical costs (dental, eye care, therapy, doctor, etc.)
  • Clothing
  • Gifts
  • Giving
  • Computer/phone replacement
  • Software subscriptions
  • Entertainment subscriptions (Netflix, Hulu, Spotify, etc.)
  • Vacation
  • Gym membership/fitness
  • Education
  • Dining out
  • Gaming
  • Music
  • Coffee
  • Holidays
  • Dates
  • Beauty (hair cuts, makeup, nails, etc.)
  • Christmas
  • Property taxes (if they’re not rolled into a mortgage)
  • Movies
  • Phone bill
  • Life insurance
  • Warehouse membership (Costco, Sam’s club, Amazon Prime, etc.)
  • Credit card fee (some cards have yearly costs)
  • House decor
  • Banking (interest owed or fees)
  • Household goods
  • Pet care
  • Child care
  • Kids’ Expenses (piano lessons, swimming, summer camp, etc)
  • Miscellaneous

If you’re writing this list down, just put the amount next to the category. If you’re using the YNAB software, you’ll set up a target in each category. It’s ok to guess!

Once you have all the categories and the estimated costs, add them up. This number is your starting point. It gives you a ballpark of how much your current life costs.

If you’re a visual learner, watch this video to see how you can estimate your total monthly expenses by setting up a budget template in YNAB.

Example Spending Plan

For example’s sake, let’s say a single guy named Billy is setting up his spending plan. He goes through this step and finds out his current lifestyle costs $3,386 a month (and he also spends way more on pizza rolls than he realized). Here’s what this exercise looked like for him:

  • Rent: $1200 (utilities included)
  • Student loan: $350
  • Electric bill: $80
  • Internet: $60
  • Auto Loan: $200
  • Groceries: $350 (that includes $50 worth of pizza rolls)
  • Gas: $100
  • Phone: $70
  • Car insurance: $90/month
  • Renter’s insurance: $20
  • Medical: $0 (money comes out of his paycheck for a Health Savings Account (HSA) so he doesn’t count this in his budget)
  • Clothes: $100
  • Gifts: $50
  • Netflix: $9
  • Spotify premium: $10
  • Amazon Prime: $12 ($120/year)
  • Crossfit gym: $110
  • Eating out: $275
  • Dates: $100
  • Miscellaneous: $75
  • Vacation: $100 ($1200/year)
  • Credit card minimum: $25 (current balance: $2400 – 0% APR until Oct 2020)

Total monthly expenses: $3,386

Nice. Billy’s got his number! He knows how much it costs every month to be him! We’ll come back to Billy later. For now, back to you.

2. Take the Money You Have and Give Every Dollar a Job

Take a look at your bank account and see how much money you have right this minute. Maybe your balance is slim, maybe it’s fat, but this step remains the same no matter your position.

You’re going to take the money you have right now and make a plan for that money. If you’re not familiar with the You Need a Budget method, this is the very first rule of YNAB—Give Every Dollar A Job.

It means just what it says. Only assign the money you have right now. See that account balance? That’s the money you can allocate to your spending plan. 

When more money comes in, you’ll decide what to do with that money at that time (and not a moment sooner). You get another paycheck in two weeks? You’ll budget the money in two weeks. Right now, it’s only about the money you have.

This is a simple but powerful shift for most people who are inclined to forecast all of the income that they expect to receive for the month. But that’s just asking for trouble—that isn’t based in the current reality. Do yourself a favor and only count on the money that you have right now.

Example: Billy Gives Every Dollar a Job

For Billy, he looks at his checking account and has $2,850 currently sitting there. If you remember from the first step, his monthly expenses total $3,561. Now he’s able to see that the money he has won’t cover everything he wants in a month. Sure, he feels a little bummed but he also feels relieved to finally see the whole picture.

Here’s how Billy prioritizes the money he has to pay for the rest of the month (at the time of writing, there is only one week left this month, so he budgets $150 for one more grocery run and the rest of the money goes for next month):

Spending Plan Example:

There is no right or wrong way to prioritize your money. Each person is going to make the choices that make the most sense to them.

3. Let Your Spending Plan Guide Your Way

As you go about your days, you’ll add your transactions (or have them imported by YNAB) to keep a current balance on how much is left in each category. By creating and using your spending plan, you’re giving yourself clarity. $25 left in coffee this month? Go for a latte! $3 left in clothing? Skip the purchase—you’ve got rent coming up! 

Change your plan any time, move money around to cover overspending, and let your spending plan be dynamic and changing, just like your life!

Why Do I Need a Spending Plan?

Remember the before times? When you just had one murky checking account balance with absolutely no clarity? You were still spending money, but you had no idea what you could afford!

  • Could you spend $500 on a new phone/computer/shiny thing right now?
  • How about spend $40 to go out to eat with your friends tonight?
  • Could you buy a $15 surprise gift for that special person you care about?
  • Can you still pay your rent or mortgage?

Your checking account balance alone doesn’t give you enough information to answer the question we all must ask multiple times a day: “Can I afford this?” Because it’s not about how much money we have. It’s all the other things that happen in our lives—our monthly rent payment, when our bills are due, and what we feel like doing with our evenings—that determine the answer to that question.

And that’s the problem with just checking our account balances. They only show us how much money we have—not what our money is for. But when we create a spending plan, we’re taking the blindfold off, stripping away the uncertainty, and giving us a clear path (that we set for ourselves!)

The Gift of Financial Clarity

With a spending plan, you neatly divvy up your dollars to those things that matter most to you: your priorities. And when you make a decision to spend (or not spend) money, you look at what’s available in your budget categories, not how much is left in your checking account.

Then, you’re dealing with certainty. You no longer have to guess or wonder or hope that you did your quick number crunch correctly while deciding what to order off the menu. You just know. When you can trust your spending plan, it has a realistic answer to any spending question you may have. And if nothing else, we want our budgets to be realistic.

Ready to make a spending plan? YNAB’s four rules allow you to easily make a spending plan to give you clarity when making your financial decisions. Can I buy this? Your budget simply answers the question—yes or no. No hoping required, and totally guilt free. 

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