Make a spending plan before you take a loan

Before you take out any form of loan, you need to be certain that you can pay it back. You also need to be certain that you’re not getting yourself deeper into debt. You need to take control of your finances and figure out exactly what you can afford.

The best way to do this is to create a spending plan that lists all your personal finances and enables you to take sound financial decisions. It may sound complicated, but it’s a simple process that takes less than half an hour.

If you don’t have accurate figures, take your best guess. Look through your old bank statements or previous bills if that helps.


Start by figuring out how much money you make. Include:

  • Regular pay
  • Guaranteed overtime pay
  • Child support
  • Unemployment and other welfare payments

Don’t include overtime payments you can’t count on, or other money you’re not sure of. For example, don’t include money you’re hoping to make by selling things on eBay.


Next, work out your monthly costs. Start by listing how much you spend on the essentials each month – and be really honest about what’s actually necessary. Not just things you like having – these are the things you absolutely can’t live without or are legally obliged to pay. For example:

  • Rent or mortgage
  • Utility bills: water, gas, electricity
  • Food (and pet food)
  • Transportation: car payments, car insurance, fuel, bus or train tickets
  • Phone and internet
  • Loan payments: include any current loans plus estimates of any new loans
  • Child support or court fines

Now add in the things you really don’t want to give up but could manage without if you really had to. These might include:

  • Entertainment services: Netflix, Spotify, subscription TV
  • Smoking and drinking
  • Meals out and entertainment
  • Holidays & special trips
  • Clothing

Now estimate how much you need to allow for occasional essential expenses. These are things that don’t happen every month, but do happen from time to time:

  • Birthday gifts
  • Vet bills
  • Car or house repairs

Calculate the totals

Once you know how much you’re making, and how much you’re spending, you can see how much money you have left each month.

  • If you’re making more than you’re spending: that’s awesome! Anything you have left over is yours to do as you want with. Enjoy!
  • If you’re spending more than you’re making: you need to make some changes. Go through your costs and see what you can cut. You probably can’t reduce your essential bills, so start by looking at that second group of expenses. What can you live without? You’ll have to make some harsh decisions, but keep cutting until your expenses are less than your income.
    Here’s where you can use that additional income you didn’t count earlier. Let’s say you have to cut Netflix because you can’t afford it. But if you sell those old bicycles in your garage, or do a couple of hours’ extra overtime, you’ll have enough extra money to pay for Netflix. So put that in your plan.  

Once you’ve decided on your plan, do your best to keep within the budget you’ve set yourself. It’s not always easy, especially if you don’t have much spending money left over.

Review and adjust

But things don’t always run smoothly, so it may take a while to get the numbers right and tweak your plan. You may need to allocate more to some items, and less to others.

Write down everything you spend throughout the month so you can see where your money is actually going. Then, at the end of each month, review your spending plan. Were your initial estimates accurate? Were there payments you forgot when you originally made your plan? Did you have unexpected expenses or emergencies to deal with? Did you spend more than you budgeted on some items? Maybe your bills were a bit higher than expected, or perhaps you saved some money.

Ask yourself if this will be a regular thing. If so, adjust your spending plan to take account of the new figures and see what effect that has on your finances.

Keep doing it

Even once you’ve paid off your loan, this is a good habit to get into. By using a spending plan, you can control your finances and prevent yourself getting back into debt.