A spending plan (a.k.a., budget) is a plan for spending and saving your income in the future. Two keys to a successful spending plan are realistic figures for each expense category and an easily manageable record-keeping system. Farm households may choose to include business income and expenses with their personal finances or calculate them separately.
Many people use software or spreadsheet programs to keep spending plan records. The link for a simple Excel spreadsheet can be found below. Some software programs print a summary of differences between planned and actual spending. Some also provide a cumulative annual summary of spending so you can see exactly where your money goes for an entire year and the percentage of income spent in each category (e.g., mortgage, 35%).
Envelopes are also used by some people as a spending plan tool. Money is put into envelopes for various expense categories. When an envelope is empty, spending in that category ends unless "transfers" are made (e.g., $50 from food envelope to utilities envelope). An advantage of the envelope system is easy access to money. A disadvantage is possibility of loss or theft, when money is kept at home, and lack of interest paid on "savings," compared to money held in a bank or credit union account.
As part of a spending plan, many people establish special accounts as a "parking place" for earmarked money. An example is reserves for occasional expenses such as property taxes. The annual cost for each expense is divided by 12 and saved monthly. Other common reserve accounts are money set aside monthly for home maintenance and emergencies.