Function

• A monthly spending plan is a guide that you set up that dictates how much money you can spend on each item or area of your life. You will set aside money for living expenses such as rent, food, entertainment, and a clothing budget. This spending plan will cover every single item that you purchase regularly.
  
  While families primarily use monthly spending plans, businesses and other organizations set up budgets to help them control spending each year. Previous expenditures are examined, and the decision is made about how much money will be needed for the upcoming year.
  
  The idea of using a monthly spending plan is to take a business-like approach to deciding how money will be spent.
  
  

Types

• There are several types of spending plans. For those with a bit of self control, a simple spreadsheet guide will do just fine. Businesses with a monthly spending plan will set up a budget for each area or department, and employees will not be able to go over the budgeted amount. For families and individuals who have trouble controlling the impulse to spend, a cash envelope system--where you put the money for each item in a separate envelope--is necessary.
  
  

Benefits

• A monthly spending plan is important because it helps to keep your spending in check, and it gives you a realistic idea about how much money you have, how much you can spend and how much you can save. It allows you to make mature and informed financial decisions easily. It also helps you to stock pile money for emergency situations.
  
  

Considerations

• There are many potential expenses that a person can have on a month to month basis. The basic common monthly budget for a family or individual should include the following items: rent or mortgage, electricity, gas, telephone bills, cable, car payments, insurance, gasoline, clothing, food entertainment, credit card payments, and savings.
  
  Housing and living expenses should always be paid first. Entertainment should be the most flexible item, but keep in mind that you can't be too strict unless you want a human-impulse binge. Don't neglect yourself of personal pleasure items, or you will not be able to stick to your monthly spending plan.
  
  

Expert Insight

• The basics of setting up a monthly spending plan are as follows:
  
  You must first determine how much money you spend on a monthly basis. You can do this by looking at the last 3 to 6 months of expenditures to get an idea of what you will spend in the future.
  
  Once you know how much you spend, you need to decide if you can afford to continue to spend as you have been.
  
  With that decision made, you can detail every expenditure item each month and designate an amount for each item.
  
  The final step is to, of course, follow the plan that you have designed.
  
  

Potential

• The long term goal of following a monthly spending plan for families and individuals is to manage expenses in order to pay off debt. Once you are debt-free, you can begin building wealth, and the real benefit of your monthly spending plan will be revealed.
  
  For businesses, a monthly spending plan or budget will help to maximize profits and eliminate waste. This will also lead to greater prosperity in the future.