If you are like most people I know, you might find it difficult to get out of the starting blocks when it comes to finances. Sometimes it’s hard enough just to pay the bills without going into debt. It’s tough to imagine having enough extra money to put aside for the future. You know it’s important to put a plan together, but how do you begin?
I feel you. It can be difficult. And the truth is you may need to stretch a bit if you really want to build your future. Fortunately, if you follow a tried and true template, it’s not really all that difficult to formulate a spending and investment plan and then put it to work.
Note: The following pertains to those people who are out of debt. If you still have high-cost debt and/or don’t have an emergency fund set aside, you should probably take care of those items before you start to invest.
What Is A Spending And Investment Plan And Why Are They Put Together?
The first part of the question is easy to answer. A spending plan lays out the broad parameters of how much you plan on spending, on average, each month. An investment plan tells you how much to invest and how to invest it in order to achieve your long-term goals.
The reason it’s important to have one plan that puts both these numbers together is because investing is indeed a monthly expense. Here’s why.
If you are like most other people, you invest now in order to have money available in the future. Why do you need to have money available in the future?
Because when you retire, your income will likely be diminished. In other words, you are putting money aside today to pay for your future expenses. Investing then isn’t really a luxury – it’s a necessity. At least it’s a necessity for anyone who wants to retire one day.
How To Build Your Spending And Investment Plan
There are a few different approaches that work. But in my opinion, there is one tactic that really gives investors the highest chances of reaching their financial potential. That winning idea is to save first and spend second. What I mean by this is to first determine what you need to put aside each month in order to reach your financial goals, set up an auto debit process whereby the money is automatically taken out of your checking and deposited into your investment account, invest that money correctly and then only spend (at most) what is left over.
This strategy is known as “paying yourself first” and it really increases the likelihood of you reaching your goals because it forces you to save first and wrap your spending around it. If you spend first and save what’s left over you probably won’t have much left over to save if you are like most people I know.
I hate to break it to you – this is probably the approach you’ve been using up until now, and it isn’t working. If it was working, you wouldn’t have read this far.
What If You Can’t Save As Much As Required?
Don’t worry if you can’t hit your savings number right from the get go. Life is a process and the important thing to do is just get that process off the ground. If you figure that you need to save $1,000 a month in order to reach your goal, start with $100, $50 or even $25. It doesn’t matter what you start with – what matters is that you get started.
If you are like most people I know, you’ll find ways to build up your monthly savings figure by either cutting back on spending, finding ways to earn extra money or a combination of the two.
If your run your projections and learn that you need to save an impossible amount each month, you still have options. You can plan on working longer, working part-time after you retire, cutting back on your retirement lifestyle or (again) a combination of all of the above.
Make investing a monthly expense that you pay before paying any other bill except after you’ve gotten out of debt. By doing so you’ll automate your success and systematically reduce any unnecessary spending – a win-win in anyone’s book.
Is your spending and investment plan working? Why or why not?