How To Create a Spending Plan

Spend With Intention To Increase Your Odds of Budgeting Success

An illustration depicting people taking on a variety of personal finance tasks.

The Balance

Now that you understand where your money comes from and where it’s going, you’ll want to put it all together. In essence, you want to prioritize your spending by assigning a purpose for almost every dollar of income.

Prioritize Your Spending

Start assessing your expenses with three simple categories: needs, wants, and savings. Tori Dunlap is the founder of the website herfirst100k.com and a writer for the net-worth-tracking app Personal Capital. She assigns motivational names for these categories, as described in an email to The Balance.  

Needs: All The Adulting Expenses You Can’t Escape From

“This money is for the expenses in your life that you need to eat, live, breathe, and ALL things survival,” she said. According to Dunlap, this includes monthly rent or mortgage payment, groceries, utilities, insurance payments, and loan, and credit card payments. 

Wants: Fun Spending

These are expenses like Netflix subscriptions and dinners out. “Spending doesn’t mean deprivation,” she said. “There are certain things in life that bring us true joy and happiness. For example, I really enjoy spending money on food, travel, and nesting. By prioritizing contributing money into my other two buckets, I can spend guilt-free on my three value categories."

Savings: Big-Money Life Goals

“I take my ‘big money’ life goals very seriously,” she said. Goals might include three- to six-months of living expenses in an emergency fund, paying off debt, and investing for retirement. She suggested contributing to goals by setting up automatic transfers from checking to goal-oriented high-yield savings accounts or retirement accounts. 

Then, prioritize spending with the 50/30/20 rule, popularized by U.S. Senator Elizabeth Warren in her book All Your Worth, written with her daughter Amelia Warren Tyagi. In essence, 50% of your income should go to needs, 30% to wants, and 20% to savings. 

Having a hard time deciding whether an expense is a need or want? “A need sustains you, and a want entertains you,” said Carrie Friedberg of SFMoneycoach.com.

Evaluate Your Expenses

Consider the three basic categories. How is your current spending stacking up to the 50/30/20 rule? Are you spending “wants” money on what’s important to you—whether travel, food, health, tech gadgets, or family?

We’ve created a spreadsheet—The Balance’s Simple 50/30/20 Budget Template—to help you track your spending and income and set priorities. We’ve added basic 50/30/20 spending categories, but you can adjust them to suit your needs. 

“Look at the last three- to six-months of discretionary spending patterns and average it out per month to create a sustainable spending plan,” said Gary Grewal in an email to The Balance. Grewal is a certified financial planner (CFP) and the author of Financial Fives: The Top 325 Ways to Save, Earn, and Thrive to Retire Before 65.

“Every time you end up under budget, spend half the surplus on an indulgence and send half to savings for some positive reinforcement,” Grewal said.

Important: You may find that the 50/30/20 doesn’t quite sync up with your situation. “The 50/30/20 rule is very subjective,” Grewal said. “For example, a single software engineer living with family may be spending much less than 50% on necessities and can save more, versus an hourly retail worker with their own apartment.” Review your situation and goals—if you have an ambitious goal such as buying a house, you might want to save more than 20%, for example. 

Friedberg also doesn’t recommend formulas due to varying lifestyles, values, and priorities. “The key is to do the math and have the courage to subtract,” she told The Balance by email. 

Next Steps and More Resources

Next, you’ll learn to manage your money with a simple budget spreadsheet. If you wish, you can enter your spending in the spreadsheet now. How does your spending align with the 50/30/20 rule?

Learn more about budget priorities from The Balance: