Take the Quiz.
Earn credit towards the spending badge by taking this quiz on what you’ve learned through Spooked by Spending Plans? at http://go.uillinois.edu/spookyspendingquiz.
Slides for the Spooked by Spending Plans? webinar can be found at http://go.uillinois.edu/spookyspendingslides.
By participating in at least three Spending Badge-eligible events, you could earn a digital badge to enhance your online professional portfolio. Learn more about the Financial Literacy Badges Program by visiting: badges.illinois.edu/usfsco.
Budget vs Spending Plan
During the webinar, we talked a lot about overcoming your financial fears to take control of your money. One financial fear that many people share includes a fear of the "B" word. Budgets often make people feel restricted with their financial choices, and anyone with a fear of confined spaces can tell you that restriction is scary.
A budget and a spending plan are basically the same thing, but by using the term "Spending Plan", we are focusing more on the fact that you control where your money goes, and with emphasizing the planning part of the process, we can feel better about accomplishing our goals.
Components of a Spending Plan
There are 3 basic parts to a spending plan:
- Savings Goals
- Income (and Resources)
Your expenses could be fixed, flexible or occassional. More on expenses later!
Understanding Resources & Income
Most people look at their income to create their spending plan, but thinking outside the box with regard to your resources may help you accomplish your goals faster.
Your sources of income could include (but may not be limited to):
- Salary or Wages from Employment
- Employment Benefits, like Tuition Waivers or Food Stipends
- Scholarships, Fellowships or Grants for your Education
- Student Loans*
- Interest from Investments
- Alimony or Child Support
Beyond sources of income, you may be able to use community resources or government assistance to accomplish your goals or cover basic needs:
- Public Transportation
- Food Pantries & Shelters
*Student Loans are a tricky type of income. They are considered income now but will turn into an expense later since they are debt. Learn more about student loans & federal repayment plans here.
The Free Application for Federal Student Aid (FAFSA) is required to qualify for any government assistance to pay for college education. Some scholarships require you to complete this free form for government assistance in order to recieve funding for your education as well. Remember to complete the FAFSA every year, as early as October 1, for the following academic year if you intend to go to school.
Below are a few links that may help you identify your resources & income:
Before you develop your budget, it's useful to know what you want, and it's especially useful to write down your goals. We know from research that people are much more likely to achieve their goals if they write them down. And, writing SMART goals can make them even more likely to happen.
Goals should be:
- S = Specific. This is the Who? What? part of your goal. The more details you can put into your plan to accomplish this goal, the easier it will be for you to achieve.
- M = Measurable. With finances, it's usually easy to make a goal achievale by stating the amount you will need to have accomplished your goal. Sometimes, the difficult part is just caclulating how much that will be.
- A = Agreed Upon. If there are others that will help you achieve your goal, you should communicate with them on what the plan is and how to achieve it together. Others that can help achieve your goals could be roommates, parents, partners or other family members.
- R = Realistic. Will you be able to achieve this goal given your current resources? Does your budget allow for you to commit that amount each month to your goal(s)? You can always re-evaluate your priorities, timelines and lifestyle choices to help you reach your goals.
- T = Timely. When do you want to have this goal completed? Are you working with multiple goals that you will need to consider when determining when you can have this goal achieved?
Timing of Savings Goals
A big component of prioritizing your SMART goals is to determine the time portion of each goal. This can help you identify whether it is an immediate, short-term, mid-term or long-term goal.
Immediate goals are now or within the next few weeks. Short-term goals, according to most financial planners, are within the next 5 years, while mid-term goals are 5-10 years and long-term goals are more than 10 years.
Depending on where you are in your life may impact what is considered short-term vs long-term for you compared to someone else.
In the webinar, we talked about several different examples of expenses that people may have. A few of those expenses could include things like rent/mortgage, savings goals, utilities, transportation, healthcare, dependent care, groceries & food, personal items and entertainment.
Your values & situation determine which expenses will be needs and which will be considered wants. An easy way to define a need is something that if you went without it, it could jeopardize your health, safety or livelihood.
Spending priorities and expense categories vary drastically from person to person, but there are 3 main types to keep in mind when identifying your expenses: Fixed, Flexible & Occasional.
- Fixed. Expenses that are consistent over time; often associated with a contract.
- Flexible. Expenses that vary over time; helpful to know when cutting spending.
- Occasional. Expenses that show up irregularly over time; may be bi-monthly, quarterly, etc.
A good example of an occasional expense would be new tires for your car. It's not something you need every month, but you can plan for it.
Sometimes, our financial fears stem from our spending secrets. Sometimes the secrets are small, like a low key gum obsession, or something big, like maxing out a credit card. Most people have something that they struggle with when it comes to finances. NEFE, the National Endowment for Financial Education, has challenged consumers in the past to share how their spendster secrets.
There are lots of personality inventories out there, and there are even some money personality inventories. We are going to put highlight two below to check out.
The Money Harmony quiz by Olivia Mellan helps you identify your money personality. You may be an amasser, avoider, hoarder, monk or spender. You may have components of each but lean towards a specific personality more generally.
Understanding our money personalities can help us better communicate our priorities & spending habits to those we care about.
Another resource you may want to check out is the Money Under 35 Quiz, based on the results of a research paper from Navient.
Putting It Into Practice
Spending plans are like a puzzle. You need to consider a lot of variables to come up with the best plan to accomplish your goals with the resources you have available. It's also flexible, so you can change a piece out whenever you need to or have the opportunity.
When it comes to building your budget, remember these 5 pieces of the puzzle:
- Identify Priorities
- Recognize Resources
- Set S.M.A.R.T. Goals
- Track Progress
- Analyze & Re-prioritize
Tools to Use
We shared several tools in the chat throughout the webinar to help you build a spending plan. You may prefer the pencil & paper method using notebooks or check registers. You might like the features in Excel spreadsheets or other apps & software. Whatever you choose, use what works best for you.
Here is a list of those tools that you can use for free:
Let us know if you have other questions about the best tools to use to build your budget and track expenses! If you're part of the University of Illinois System, you can even request an individual financial coaching session by completing this form.
Ways to Save
Take a close look at small amounts of money that you spend frequently - these can add up.
Do you find that you spend more with cash or with a credit card? Once you know what leads you to extra spending, take steps to change wha'ts in your wallet!
When you're trying to decide whether to buy something or not, calculate how many hours you have to work to pay for it. Is the time worth it?
Check out 55 Ways to Save Money from University of Illinois Extension for more ways to save.
Here are a few red flags to watch for:
- Your spending plan results in a negative number.
- Forgetting to include categories in your spending plan.
- Underestimating costs or overestimating income & resources.
- Variations in spending & income from life transitions.
- Too much money accumulating in the "other" category.
Keep these top tips in mind when you're working on your spending plan:
- Spend less than you earn.
- Prioritize saving to accomplish goals.
- Student loans turn into an expense later.
- Change your plan to match your needs.
- Track your spending how you choose.
This is a Spending Badge Eligible Program.