The difference between a budget and a plan and why you need both
Creating a budget and actually sticking to it is an amazing accomplishment! If you do this then you know just what I mean. With all the time spent on learning how to manage money effectively with a budget, what is the point if it isn’t helping you achieve your financial goals? This is where a financial plan comes in to play. Learn the difference between a budget and a plan and why you need BOTH of them in order to reach your goals.
I started budgeting all the way back in 2006 as a way to have more control over my money. I was just about to finish nursing school and therefore about to have a nice increase in income. Unfortunately, my budget was lacking financial goals! I was budgeting with all of my income and not taking into consideration the things I wanted from the future.
Does this sound like you at all? Do you feel like you can’t even look towards the future at this point in your life? I am here to tell you that you are wrong. You can learn how to not only manage money effectively, but reach big goals too!
What is a monthly budget and how does it help me manage money effectively?
A monthly budget is a way to track your incoming and outgoing expenses each month. Your monthly budget may consist of tracking every small detail or just tracking a general expense. I am a strong advocate of tracking every dollar that you spend and that you earn if you are really pushing towards goals or living paycheck to paycheck.
Each week (or biweekly or monthly, it is your choice), you will write down how much you have spent and how much you have earned. This will help you know how much you have left over for things that you need, want, or how much you have left over for bills.
Over time, you will learn how much you are spending on each category, how to save money in each, and thus, how to manage money effectively. Making small changes each month to effect your monthly budget will help you get closer and closer to your goal cash flow.
How will my family benefit from a monthly budget?
Creating a monthly budget is only half of the task. Then you have to stick to the budget each and every month in order to:
- Not spend more than you earned which causes debt
- Pay your bills consistently so as to not get behind
- Help you pay down debt consistently or save money if you create a plan
- Know what is coming up that is going to cost money
Sticking to the budget is a bit more difficult at first, but as you get use to it, you will find that it is easier to keep up with. Working on your budget weekly is the best idea until you really get into a groove.
Don’t have a budget sheet yet? Subscribe to my email list and you can purchase my monthly budget printable worksheets for just $7 so that you can start to manage your money now. If you prefer spreadsheets, you can add those on for $5 more!
What is a money or financial plan?
Having a monthly budget written out is definitely a big task, but what is really life changing is when you really ask yourself what you want out of life in 1, 5, 10, 20 years. Working towards those goals is where your life really starts to change. That leads to one difference between a budget and a plan which is the budget is kinda like the road map and the plan is the fuel to get there.
When Mr. Hubster wanted to leave his career in the Coast Guard, we made a goal to save up $15,000 so that we could live off of that if need be while he was in school. Each month, we knew exactly what we needed to save in order to reach that goal. If we had not made a financial plan, he would not have been able to get out of the military.
We absolutely had to have a monthly budget in order to manage our money effectively, but I will tell you, having a plan put a fire under us. Before that, we weren’t saving nearly what we should have been. Having a well thought out plan helps you set realistic goals that you can reach and makes you want to reach them! If you are having troubles thinking of some financial goals, check out this post.
Planning and budgeting process
When I created my monthly budget printable worksheets and spreadsheets, I knew that I wanted people to be able to set financial goals. Having a budget isn’t just about managing money effectively, it is about finding financial freedom. If you purchase these worksheets, you will find a goals planning sheet along with the rest of the budgeting sheets.
The planning process
The planning process is a lot like dreaming about what you want your life to look like in the future. Write it all down. Dream a little (or a lot). And then break those goals down into yearly tasks that you will have to meet in order to achieve that big goal.
For example, going back to my story about saving 15k so that Mr.Hubster could leave the military. We had about 16 months to save. That meant that we had to save about $940 each month in order to achieve our goal.
If you have many goals, part of the planning process is putting them in order. So, if you have debt, but also want to buy a house and save for retirement, you may put them in that order (pay off debt, save for downpayment on home, save for retirement). Working on them one at a time will help you reach each goal faster, but you can choose to do them simultaneously as well.
The budgeting process
I have written about creating a budget in it’s own post (because it needs it’s own post!) so I will just touch on the budgeting process a bit here. To create a budget, you will need to know:
- How much you bring home
- Your monthly expenses
- Your occasional expenses
- Your savings goals
- Your debt payoff goals
Fill all of this out on your monthly budget printable worksheets (get them for $7 if you subscribe to my email list!). You will then need to keep track of your expenses so that you know exactly how and where you are spending money.
For more help with the entire budgeting process, grab those monthly budget printable worksheets for $7 and then check out my posts on:
- How to create a budget
- Not enough money at the end of the month
- How to pay off debt
- How to set up the Envelope System
- How to save for an Emergency Fund
I hope you understand the now and why you need both in order to manage money effectively!
It really is a symbiotic relationship between a budget and a money plan. While you can have one without the other, they both thrive when accompanied by the other. Creating and sticking to a budget will help you manage money effectively, but creating a financial plan and sticking to it will help you reach your financial goals.
DON’T FORGET! Subscribe to my email list to get the monthly budget printable worksheets for just $7. Some people just don’t like pen and paper which is why I am offering the spreadsheets too! Grab both for $12.