How to Create a Spending Plan

We hear a lot about the importance of saving money, but what if learning how to spend is just as important?

Michael Hunsberger, a certified financial planner and owner of Next Mission Financial Planning in St. Charles, Missouri, says many of his clients struggle with the spending side of the financial equation, and he wants them to get better at it.

“You built all this money and now you don’t want to spend it,” he says.

Retirees, for example, are often reluctant to spend money when they are no longer earning and know that the money has to last the rest of their lives.

But Hunsberger says coming up with a spending system can help ensure you enjoy those later years.

Here are five ways to develop a spending plan:

Before you start spending, it’s a good idea to make sure you have enough saved to meet some of your short-term and long-term goals, says Aja Evans, a financial therapist and author of “Feel Good Finance.”

“Come up with an amount you would feel ‘safe’ with,’” she says — whether it’s $5,000 or $50,000 — for your emergency fund.

Then, once you hit that number, create a plan that includes spending.

If you grew up in a household where your parents were very frugal or there was scarcity, it can be harder to embrace the art of spending as an adult, says Molly Ward, a CFP and certified divorce financial analyst with Equitable Advisors based in Houston, Texas.

“We all have money baggage and it helps to check your money mindset. Where are you coming from?” Ward asks.

Evans says she sees clients with spending aversions resort to “hoarding money because they are either worried, fearful or concerned that something catastrophic is going to happen where they don’t have enough money,” she says.

People struggling with this worry may be overly cautious and put excessive amounts of cash in low-interest accounts where it’s safe, but not earning much interest.

That type of behavior, Evans says, is often associated with people who have experienced financial trauma or hardship as children.

“They never want to be back in that situation,” she says.

“I’m not telling people to spend their savings, but I don’t want it just sitting in an account. Sometimes you need to take a small risk so it can grow,” she says.

In some cases, Evans says, financial therapy can help explore patterns of behavior you want to change, such as buying more clothing than you could possibly wear or avoiding travel spending.

“Consider getting some extra support,” she says. “A lot of this behavior may be coming from a deep-rooted anxiety.”

If you’re looking for a financial therapist, you can use the Financial Therapy Association to find one.

Making well-intentioned purchases that are carefully planned and budgeted for — such as getting a massage or treating your family to dinner — can help people get accustomed to spending in a thoughtful way, Evans says.

“You’re starting to build the muscle and savings habit in a way that makes spending feel safe and comfortable,” Evans says.

That might look like finally buying a plane ticket or booking a hotel reservation for a dream vacation, for example.

Ward says developing spending systems can help make the process feel more controlled.

She likes making lists of potential splurges outside of her monthly budget and then reviewing them all at the end of each quarter before deciding whether or not to buy the item. That way, she’s not constantly spending excessive amounts on unplanned items.

“It makes it more special. You’ve waited for the item, and you’re rewarding yourself,” she adds.

Establishing certain habits, such as reviewing your spending regularly and cutting back in areas that have crept upward, such as subscriptions, can be a helpful way to create a sustainable balance of spending and saving, Ward says.

“Maybe you have a roommate, spouse or friend and you can learn together or share savings tips once a month,” Ward says. “Instead of a book club, have a money-saving tips club. We can learn so much from each other.”

“I’ve seen success when people have systems for their paychecks and they build in some fun money into that system,” she adds.

For example, perhaps 10% of your paycheck can go toward a discretionary category that allows for some splurges.

And if you receive a windfall in the form of a tax refund, bonus or inheritance, Ward suggests applying the same concept.

“Give yourself permission to spend up to 10% on something you love that’s meaningful to you,” she says.