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Creating a Conscious Spending Plan: 8 Essential Tips to Create and Stick to Your Budget

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Creating a budget is the first step toward building a better financial future. In this blog post, we'll explore simple strategies you can implement to develop a conscious spending plan that helps you stay on track.

Read on to learn more about making the most out of your money while working toward your long-term financial goals.

1. Pay Yourself First

The first and most important aspect of creating a budget is handling your savings and expenses. It is ideal to allocate about 10–20% of your monthly revenue to savings. If that's not attainable, decide on a monthly amount to save, and stick to it.

A convenient way to ensure that your savings don't get spent is to open a savings account specifically for this purpose and set an automated monthly transfer to that account. For extra incentive not to dip into that account, you can choose an account type that includes a penalty for impromptu or early withdrawals.

2. Budget for Your Needs and Wants

Your conscious spending plan should prioritize how you allocate money based on needs and wants.

Needs are recurring expenses such as your mortgage or rent payment, utility bills, car payments, or health insurance premiums. A simple step for improving your budgeting skills is to track these expenses and immediately put enough money aside to cover your needs when you get your paycheck.

Wants are expenses that would improve your life—but you don't need them. This category can include vacations or a new car. You can create a conscious spending plan by identifying these wants, choosing one or a few that are most important to you, and making a monthly contribution so you can afford these luxuries over time.

3. Start a Weekly Allowance

A weekly allowance or allocation for expenses like groceries, transportation, and possible miscellaneous items will keep you on track with your budget. This is a great way to keep yourself accountable and prevent overspending. You can create a conscious spending plan by using cash to cover your weekly allowance.

Withdrawing the cash amount you've allocated yourself will keep you conscious of your expenses and prevent overspending. Once you've hit your limit for the week, you'll have to wait until the next week to make another withdrawal.

4. Cut Down on Non-Essential Expenses

A daily cup of coffee is one of those frequent, non-essential expenditures that add up over time. Many people justify their daily Starbucks by saying, "It’s only six dollars," translating the expenditure as insignificant. However, you can save over $1,000 annually by making your coffee at home every morning. You can cut down on many similar expenses, such as eating out or monthly apps and other subscriptions. A recent study found that, on average, Americans spend $219 each month on subscriptions.

You can create a conscious spending plan with a simple exercise. Track down every expense over the course of a month. At the end of the month, categorize the purchases into different categories, like eating out or entertainment. Then, update your budget to include the categories you want to keep spending money on, or use this exercise to be more cautious about unnecessary expenses.

5. Involve the Family

Budgeting must be a joint activity if you are married or share expenses and bills with other household members. It would be counterproductive if you were making all the right moves but your spouse was spending away. Everyone in the household should be involved in budgeting.

If you have children, this is an excellent opportunity to start teaching them financial literacy. When the entire household is involved, budgeting will feel like less of a burden because you aren’t doing it alone.

6. Cut the Credit Cards

Credit cards can be one of the biggest hindrances to sound budgeting. If you have any credit card debt, you understand how devastating it can be to constantly have to set aside a portion of your income to pay it back.

Paying off your credit cards should be a priority. Once your balance is down, you can develop a conscious spending plan to manage your available credit while building your credit score without letting credit card debt grow out of control.

7. Treat Yourself

Life isn’t all about saving. If you budget and save everything, you are likely to end up frustrated, which can lead to bursts of irresponsible spending. To avoid this, you should always include an allowance in your budget to treat yourself. Buy yourself a nice meal or some new clothes. Don’t let your budget stop you from enjoying your money. Responsible budgeting is not about constantly restricting yourself but about practicing moderation with your finances.

8. Always Plan for the Unexpected

Sometimes you may have an unexpected expense that isn't an emergency but is just unplanned. That is why you should always include a miscellaneous category in your budget. When you have money set aside for surprise expenses, you won't have to cut into your savings or other budget categories to handle them when they pop up.

Four Simple Steps to Take Your Conscious Saving Plan to the Next Level

Create a simple but effective saving plan with these easy steps.

Start an Emergency Fund

An emergency fund is essential for everyone. Emergencies are not the same as miscellaneous funds or savings. Your emergency funds are for desperate times, such as losing your job or a family member falling ill.

Ideally, you should have enough saved to cover between three and six months of bills. If this goal doesn’t seem attainable at the moment, save what you can and build this reserve over time.

Pay Off Debt

Paying off debt should be a priority for conscious spending. Whether your debt comprises credit card balances, student loans, or anything in between, responsibly paying off debt will free up cash that can be applied to other channels, like savings or investments. Tailor your budget to pay off your debts as soon as possible.

Open a Savings Account

The right banking products can make saving easier. If you don’t already have one, opening a savings account with a competitive rate should be a priority.

This simple step will help your nest egg grow faster, and you can take advantage of modern digital banking features to schedule automated monthly contributions to your savings account.

Explore Your Investment Options

Investments, especially long-term investments, are ideal for building wealth. Instead of letting your money sit idle, find a safe and reliable investment and allow it to build with time.

Your investment strategy should reflect your financial goals and risk tolerance. Ideally, you should build a diversified portfolio that leverages a mix of assets with different risk profiles and potential returns. It’s best to seek advice from a professional if you’re new to investing.

Power Financial Credit Union Can Help

Conscious spending can be challenging, especially when you are just starting. Rest assured that you can build your "budgeting muscle" over time and achieve your goals.

Consistency and discipline are essential when it comes to creating and maintaining a budget. When you end up overspending or not hitting your goals, don’t give up, and when you are tempted to spend outside of your budget, remember why you created it in the first place!

Contact Power Financial Credit Union today for help with your budgeting process. We're here to assist you in creating the future you deserve!