Why I Like “Spending Plan” Better than “Budget”
I really hate the word “budget.”
Of course, like so many things in life, my aversion to the word budget has more to do with my own personal baggage, then any real problem with the word itself.
In the case of the word budget, my personal finance baggage is quite heavy.
When I’m talking about how I manage my money, I prefer to use the phrase “spending plan.”
It seems, I think, to convey a better sense of control and purpose. I know that a spending plan is, really, just another budgeting technique, but I feel better about it anyway.
Budget = Restrictions
One of the biggest issues I have with the concept of budgets is the restriction factor. I know that, as a personal finance blogger, I’m supposed to be ok with cutting back, but I really don’t like the idea of enforced restrictions on my spending — even when I’m the one creating the restrictions with a budget. My personal money style is that of a spender, and a budget cramps my style.
To me, budgets are about limitations. With a budget, I try to set a limit on different categories of spending. Once I hit that limit, I’m supposed to be done. There’s no spontaneity. Unless, of course, I budget that in, too. But it seems kind of pointless to budget in what’s supposed to be fun, spontaneous spending.
After a while, the budget starts to chafe, you feel restricted, and you start to feel a little bit harried, forced to count every penny — and possibly pinch each penny as well. It’s exhausting, and, in my case, it sucks the joy right out of spending money.
Spending Plan: Flexibility after Meeting Funding Priorities
Instead, with a spending plan, I find there’s a little more flexibility. Just because I don’t like budgeting, and I like spending, doesn’t mean that I ignore the basics of good financial practices. Instead, I plan some of my spending ahead of time to make sure that my most important funding priorities are met.
Before I spend on entertainment, recreation, dining out, and travel, I make sure that the essentials are covered. My funding priorities include:
- Tithing to my church
- Charitable donations
- Monthly obligations (mortgage, insurance premiums, utilities, groceries, etc.)
- Retirement account
- Emergency fund
- Effort to build dividend income portfolio
- Long-term spending goals (vacation, car down payment, home improvement, etc.)
As far as I’m concerned, once those funding priorities are met, other spending categories don’t matter. I automate most of my funding priorities, so that is all taken care of without conscious effort, and recorded in my personal finance software.
There’s no need to pre-plan how much money I can spend eating out, or going to the movies. I don’t have to hold off on buying sale-priced camping gear, just because it’s not in the budget for the month. As long as I don’t go beyond my means, there’s no need for a formalized restriction on spending categories.
Reactive vs. Proactive Financial Planning
Another difference I see between budgets and spending plans is that one seems reactive, while the other is more proactive. To me, a budget seems reactive. It’s as if you’re on the financial defensive, cutting spending and trying to avoid “overspending” in each category.
It’s a position that seems to encourage a lack of control. In my mind, having a budget is a lot like being at the mercy of your money.
On the other hand, a spending plan evokes feelings of purposeful spending. In my mind, a spending plan is about taking charge of my finances, and directing my money. I can choose the way I direct my resources, planning to fund my most important priorities.
It just seems more positive to focus efforts on creating a spending plan that puts you squarely in charge of your financial destiny. Rather than thinking, “I can’t only do this much this month,” as a budget encourages you to think, a spending plan allows you to say, “I’m going to do this with my money.” Perhaps it’s not a big difference, but it reveals a lot about the mindset.
With the budget mindset, money is always scarce. Even if money isn’t scarce in your situation, the budget mindset seems to set up financial scarcity, since you know there is a cap on what you can spend in certain categories.
Your spending plan, though, indicates that you have some sort of direction and purpose for (at least some of) your spending. It implies that you have the money to meet your goals, and that you are in charge of your money habits, deciding where your resources should be used next.
What Do You Think?
Many might say that there is little to choose between a budget and a spending plan. To me, though, spending plan is preferable.
What do you think? Do you think that there is a psychological difference between saying “budget” and “spending plan?” What do you think that difference is?
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A “budget” gives off a negative vibe … while a “spending plan” sounds more optimistic. Sounds less frighten.
You make many good points. Good luck with your spending plan.
I budget. Well, I have budgeted in the past, but this year has been a mess. I haven’t really looked at a budget and restricted myself to one in about ten months. The effect is profound. So starting this month I’m back on a budget. I’m living off of $1k a month not including bills or savings. I have about 5 categories split among the $1k. Once each category meets its cap I’m done. Budgeting is pretty easy, but I guess it depends on why one is budgeting. I’m doing it so I can save a set amount of money per month. I know if I break my budget then it wouldn’t be possible. Simple.
I view having a “budget” as more responsible than having a “spending plan”. Although when it comes to vacations a “spending plan” is a must to stay on budget.
I have a cross between a spending plan and budget. I review my expenses each month to keep them in line. I find that more effective than a standard budget.
I used to have a spending plan of $1,000 per month where I can use it on whatever I want, as long as I didn’t hit beyond the limit. But I was always overspending, and I have just reverted to a budgeting plan where I would put cap on all the different sectors, which still add up to $1,000.
I agree there’s a psychological difference… budgeting cramps my style, but hey, I needed my style to be cramped else I would still be overspending! With budgeting, I know what needs to be controlled (I know I spend too much on entertaining) and I know what I was too tough on (I could have spent more money on clearing my debt)!
You must have a lot of money to burn if you don’t have a budget. Many people don’t have the luxury of being nebulous about their spending plan. We have a budget because we want to live within our means. I didn’t see paying off debt on your checklist, so it sounds like you’re in a good financial place. We’re still working on debt, so the spending plan directly affects how much interest we pay the big banks. To minimize this, we have a budget which forces us to spend less and focus on paying off debt.
The budgeting software that I have experience with envelope system, Quicken, and Mint.com. For me, I like Mint.com because it is automated, I can share with my wife online, and it has rollover budgeting. The rollover feature is very useful since our pay periods vary and a rollover budget is more realistic than monthly budgets.
It’s not so much having money to burn, as it is directing the resources you have. When paying down debt was a priority, we directed money toward that effort first. You still have limits with a spending plan — once the money’s gone, it’s gone. The trick is to make sure your priorities are fully funded. Then you can do what you want with whatever’s left. When we were in debt pay down mode, there wasn’t a whole lot left to just spend on whatever we wanted.
In the end, it’s what works for you. For me, it’s a spending plan. For others, it’s all about the budget. That’s the beauty of PERSONAL finance.
A “spending plan” sounds more like political correctness and semantics. A spending plan, to me, is nothing more than budgeting for specific line items and putting the rest as misc. expenses or “blow money”. It is still a budget — you just have chosen to not organize your money in a detailed manner and decided to call it a “spending plan” vs “budget”.
That’s the point, as I said in the article. It’s more about mindset, and the idea of taking control of your money vs. being reactive to what’s happening in your financial:
“It seems, I think, to convey a better sense of control and purpose. I know that a spending plan is, really, just another budgeting technique, but I feel better about it anyway. …
Even if money isn’t scarce in your situation, the budget mindset seems to set up financial scarcity, since you know there is a cap on what you can spend in certain categories. Your spending plan, though, indicates that you have some sort of direction and purpose for (at least some of) your spending. It implies that you have the money to meet your goals, and that you are in charge of your money habits, deciding where your resources should be used next. …
Many might say that there is little to choose between a budget and a spending plan. To me, though, spending plan is preferable.”
My entire argument is that I like the term “spending plan” better than “budget” because of the mindset is puts me in. I started out the article by pointing out that my spending plan is really, ultimately, a budgeting technique. The difference may be semantics, but the way we use words, and the emotions that they evoke, can make a difference in our behavior. For me, having a more traditional budget, in the sense that it is often used, serves to discourage me. Tweaking the traditional budget, and using it as a spending plan, keeps me motivated, and helps me stay on track with my most important priorities.
Of course, you don’t have to agree. Perhaps, for you, a budget has a positive connotation, and calling it a spending plan doesn’t matter. That’s why I ended the post with a question:
“What do you think? Do you think that there is a psychological difference between saying “budget” and “spending plan?” What do you think that difference is?”
Maybe you don’t even think there is a difference, and I’m silly for making the distinction.