A spending plan is a key part of an active strategy for getting to whatever financial goal you might have. It starts with a general idea, such as “I want to live better” … “I want to get out of debt” … “I want to invest more” … or “I want to retire early.” Then it separates that idea into small, specific, everyday actions you can accomplish one by one.

Start with this test: Write down where your money went last month. Don't do it from memory: Use your checkbook for reference. Compare the result with your take-home pay. Odds are that you can't account for all the money. In fact, there will probably be a substantial gap between what you earned and what you can remember spending.

A spending plan is basically a budget that helps you get what you want by figuring out how to go about getting it. It’s a positive step that can help you:

1. Show where the money goes.

2. Set aside more money for savings and investments.

3. Make a decision about quitting work, moving, building a house or having a baby.

4. Prepare for hard times or unexpected expenses.

5. Make better use of your money during good times.

6. Help the family focus on common goals. 

7. Have money for the things you want to buy.

8. Get out of debt.

9. Live on your income — not beyond it.

10. Prepare for big expenses such as college, a new house or a major vacation.

11. Retool your life after losing a job, losing a spouse or becoming too ill to work.

12. Determine the minimum income you can live on in case there’s a cut or interruption of pay, a divorce, a period of retraining for a different job or early retirement.