Spending plan vs. budget represented by 2 lanes in 100 meter dash lanes

Spending Plan vs. Budget (Create the Best Plan for You)

Whether you call it a spending plan or a budget, having a plan for your money is one of the best ways to develop financial confidence.

But what you call that plan can trigger different reactions.

Think of the word “spending plan.” How does it make you feel? Like a kid with a blank check?

Then try the word “budget.” Does your chest tighten? Does your inner rebel pump her fist in the air?

Most people prefer the term spending plan.

We’ll look at a spending plan vs. a budget and take the best of both to help you create a financial tool that works for you. One that helps you instead of gathering dust in your financial basement.

So, first, let’s talk about the differences.

What’s the Difference Between A Spending Plan and A Budget? 

The main difference between a spending plan and a budget is in the mindset it triggers in you. The mechanics can be different as well—spending plans tend to be simpler and less detailed. But both are blueprints for what you want to do with your money.

We’ll cover the mechanics first.

What Is A Spending Plan? 

A popular version of a spending plan has you dividing your money into three main buckets.

Bucket One

This bucket contains all your needs and obligations in all categories of spending (for your fixed, variable, and irregular expenses). It includes categories such as “rent,” “food,” and “car payment,” along with a monthly estimated amount.

The total amount is the money you need to live on and pay your bills each month.

Bucket Two

Your savings and investment categories go in this bucket. Examples are 401(k) plan deductions, emergency funds, and general savings accounts.

Technically, since this is a “pay yourself first” category, it should be step one. But you need to figure out your essential living expenses first since they tend to be non-negotiable (at least in the short-term)!

Bucket Three

Bucket three contains everything else—any money left over after you fund the first two buckets. It’s a lump sum that you spend with no accountability. You don’t need to track your spending by categories like out to eat, entertainment costs, etc.

You get to spend this money any way you want.

These expenses are called “discretionary” expenses because they are optional—the expenses that make life enjoyable but can be cut in a financial emergency.

What Is A Budget? 

A budget works in almost the same way. The significant difference is that you’d figure out how you want to spend in ALL the buckets, not just the first two. So, instead of a lump sum in that third bucket, you’d come up with categories and numbers for those “discretionary” or fun expenses. For example, “Out to eat at $70 month.”

I have a 10-step detailed budget guide with everything you need to do if you want to learn more.

A spending plan is faster to create than a budget because there are fewer details. By leaving out the details for that third bucket, you make it easier.

But I believe that getting even a vague idea of your discretionary categories is a useful exercise.

I’d argue that any money you spend that’s not intentional does not provide the best benefit for you. Because few of us can spend unlimited amounts of money, we want to make the most of our “fun” money.

For example, if you randomly spend that third bucket in a spending plan, what if something you really want comes up? Now you may not have the money for it. Or what if your spending in one area gets so high you have little money left over for something else much more important to you?

A little planning can go a long way.

But I’m also an accounting nerd who can get lost in detail. Include the level of detail that is useful for you.

Also, part of maintaining a budget is reviewing your spending each month to see how closely your spending came to your original budget numbers. This last part is why many people call budgets restrictive and stressful.

They feel like it’s a failure to overspend in a particular category or month, and failure can cause stress. But, as I’ll show shortly, it doesn’t have to be this way.

Either a budget or a spending plan is an excellent tool for making the best use of your money. And many personal finance sites may call it a spending plan, but when you look at the mechanics, it’s exactly the same as a budget.

Spending Plans vs. Budgets—What’s in a Name?

The second big difference between a spending plan and a budget is the mindset. And when you are dealing with money, mindset is everything! It can make the difference between using this fundamental, essential building block of your financial future or blowing it off and doing nothing.

If the word “budget” triggers a scarcity mindset and seems old and musty, don’t use it.

If the words “spending plan” sounds even remotely fun, use the term spending plan instead.

They are only words, but the words you use affect you.

“Words are powerful. Words make a difference. They can create and destroy. They can open doors and close doors. Words can create illusion or magic, love, or destruction. … All those things.”― R.M. Engelhardt

I prefer the term spending plan but use the term budget anyway because more people understand what that means. That’s why you’ll see the word budget used throughout this blog. Plus, using the two terms interchangeably has blurred the word budget’s negative edges for me.

The Best of Both Worlds  

Here are some main criticisms of budgeting and the negative mindset it may provoke, along with how to “fix” it. This would give you the best of both worlds—the mindset of a spending plan combined with the mechanics of a budget.

Spending Plan


The Fix

Simpler and easier to create. Complex and harder to create. Create a plan that is only as complex as you need or want. The critical point is to plan at all.
Flexible. Once the first two buckets are filled, spend the rest, however you want. Rigid, limiting, or restrictive. You’re “not allowed” to overspend in any categories. Any financial plan you create MUST be flexible to work.

If you overspend in one category, simply reduce spending in another. Skip the judgment! Only the total amount you get to spend is limited.

Proactive and action-based. Reactive and frustration based.


Use the feedback from your budget to see where you either over-spent or under-spent to make proactive changes in the next month. Focus on the feedback objectively, and skip the frustration when your results differ from what you’d like.
Based on “I can,” it’s a positive approach. Based on “I can’t,” it’s a negative approach. Budget numbers simply tell you where you are right now. “I can’t” isn’t a fun message, but it is useful if you chronically overspend. Instead of “I can’t,” ask, “How can I?”
It’s a friendly guide, and you have control. It’s a stern rulebook where you lack control, and you do what the rules tell you to do. Think of your budget in terms of guidelines, not strict rules. Remember, it needs to be flexible to work.


Focused on spending money. Focused on not spending money and on making sacrifices. Creates a scarcity mindset. The fastest way to ruin a budget is to create one where you feel deprived. Don’t let a budget drain all the fun out of spending money!

Don’t focus solely on cutting expenses. Instead, align how you spend money with your deepest priorities, part of living intentionally.

Use the Best to Create A Spending Plan or Budget That Works For You  

“The secret to getting ahead is getting started.”
― Mark Twain

Spending plan vs. budget, call it whatever you want, as long as it inspires you.

A quick caution. If you are entirely new to this, start small. Creating a plan for your spending is like exercising for the first time.

New exercisers who don’t make it past the first two weeks are the ones who start with one-hour workouts five days a week. If you struggle to get off the couch, begin by walking daily instead.

Same here. If you start with smaller, easier steps, you are more likely to stick with it.

Create a simple spending plan to get started.

As you build your financial muscles, consider a full-blown budget to be intentional in all your spending.

The important part is to begin!


FEATURED IMAGE: Photo by Tim Gouw on Unsplash