families taking charge: setting spending priorities · 3 monthly spending plan (worksheet 1a) step...
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FamiliesTakingCharge:SettingSpendingPrioritiesRevisedByCeliaRayHayhoe,Ph.D.,CFP®,FamilyResourceManagementSpecialist
Facedwithareducedincome,manyfamilies
waitsixmonthsorlongerbeforetheyreduce
theirspending,accumulatingdebtandunpaid
bills.Familiesneedtocutbackonspendingright
awaybydevelopingaspendingplantohelppay
theirbillsandlivingexpenses.
Manypeopletrytohidefinancialproblemsfrom
themselvesorfamilymembers.Notfacing
problemscanbeverydestructivebecausethe
worryandstresscausedbyfinancialuncertainty
andlackofcashmaybeworsethanthefinancial
problemitself.It’simportanttolookrealistically
atthesituationandactivelyseeksolutionsto
problems,despitethediscomfort.
Becausespendingdecisionsaffectthewhole
family,talkwiththefamilyaboutthesituation.
Letthemknowthefamilyneedstochangetheir
spending.Involvethemindecidingspending
priorities.Iffamilymembersunderstandthe
toughchoicesthatmustbemadeandhavea
voiceinmakingthedecisions,theywillbemorewillingtoacceptthedecisions.Asyourfamilytalksaboutwhat
ismostimportant,besuretolistentowhatotherssay.Supportingeachothercanhelpyoupulltogetherasa
familyandgetthroughthesehardtimes.
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HowOtherFamiliesHandleReducedIncomeStudiesshowfamiliesrespondtoreducedincomebycuttingbackontheirspending.Spendingfornonessentialssuchasluxuries,vacations,eatingout,andhomefurnishingsiseliminatedorreducedfirst.Astheperiodofunemploymentorreducedincomecontinues,manyfamiliesalsoreportreducedspendingforbasicneedsincludingfood,shelter,transportationandmedicalcare.Familiesalsosaytheyrevisetheirbudgets.Mostmakeanewspendingplanthatincludesarevisedplanforgettingthebillspaid.Thisisatimewhenyoumayfinditusefultouseawrittenspendingplan.Somefamiliesreportedusingmorecreditasawaytomanageduringunemployment.Borrowingorusingcredittopaybillsoftenbringsonlytemporaryrelief.Forthosefamilieswhodidincreasetheiruseofcredit,themoretheyborrowed,themoreunhappytheywerewiththeirfinancialsituation.Studiesalsofoundthatfamilieswhoquicklymadechangesintheirspendinghabitswerethemostsatisfiedwithhowtheyweremanagingduringunemployment.Familieswhodidn’tmakechangesfeltmoreoutofcontrolandmoredissatisfied.
MakingaSpendingPlanAspendingplanisalwaysaneffectivetooltohelpyougetthemostforyourmoney.Itisevenmoreimportantwhenyouhaveasuddenchangeinyourincome.Aspendingplanhelpsyou:• makedecisionsabouthowtospendyourmoney• provideforneedsbeforewants• matchyourspendingtoyourcurrentincome• preventfamilyargumentsovermoneyWorksheet1,“MonthlySpendingPlan,”canhelpyousetupaspendingplanforyourcurrentincome.Bycomparingyourincomeandplannedexpensesbeforeandafteryourincomewasreduced,youcanseewhatchangesareneeded.Step1YourIncome(Worksheet1A)Addupyourcurrenttotalfamilyincomefromallsources.IncludeUnemploymentCompensationaswellasincomefromotherfamilymembersifitisusedforfamilyexpenses.Usethetake‐homeamount,orwhatyouactuallyhavetospendafterdeductions.Doyoureceiveincomefromanyofthesesources?• Earningsfromemployedfamilymembers• UnemploymentCompensation,SocialSecurity• Giftsfromoutsidethefamily• Withdrawalsfromsavings• Tips,bonuses,andcommissions• Interestordividends• Childsupportoralimony• Publicassistance• Veteransbenefits
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MonthlySpendingPlan(Worksheet1A)Step1–YourIncome(Take‐Home)* BeforeReduction AdjustedAmountSalary,wages $ $UnemploymentCompensation $ $Cashgifts $ $Publicassistance $ $Tips,bonusesandcommissions $ $SocialSecurity,RailroadRetirementorVeteransbenefits $ $Withdrawalsfromsavings $ $Childsupportand/oralimony $ $Interestanddividends $ $OtherIncome $ $A.TotalMonthlyIncome $ $Step2YourMonthlyExpenses(Worksheet1B)Ifyouhadaspendingplanbeforeyourincomewasreduced,youprobablyknowhowmuchyouwerespendingformonthlyexpenses.Ifnot,useoldrecords,canceledchecks,billsandreceiptstofigureouthowmuchyouspentonthefollowingcategories.• Housing—mortgageorrentpayments,(propertytaxes&homeinsuranceifincludedinyourmortgage
payment)• Utilities—electricity,gas,oil,phone,water,cableTV• Food—groceries,eatingout,schoollunches• Transportation—gas,carrepairsandmaintenance,parking,bus,taxifares• Medicalcare—doctor,dentist,clinic,hospital,medicine,glasses• Creditpayments—carpayments,installmentloans,creditcards,chargeaccounts• HouseholdExpensesandMaintenance—repairs,cleaningsupplies,papersupplies,towels,equipment• ClothingandPersonalCare—newclothingpurchases,laundry,drycleaning,haircare,cosmetics,
toiletries• EducationandRecreation—books,magazines,newspapers,lessons,tuition,hobbies,clubdues,sports,
petexpenses,entertainment,vacation,alcohol,tobacco• Miscellaneous—childcare,regularcontributions,personalallowances,childsupportpaid,alimonypaid.
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Asyouthinkaboutwhatyouwerespendingandtrytoplanhowmuchyoucannowspend,askyourselfthesequestions:• Whichexpensesareessentialtoyourfamily’swell‐being?• Whichexpenseshavethehighestpriority?Publication354‐101inthisseries,“HowtoDecide
WhichBillstoPayFirst,”canhelpyoudeterminethis.• Whichareascanyoureducetokeepyourspendingwithinyourincome?• Howmuchcanyouaffordtospendineachcategory?Adjusttheamountsyouspendineachexpensecategoryandenterthenewamountinthecolumnlabeled“AdjustedAmount”onthespendingplanworksheet.
MonthlySpendingPlan(Worksheet1B)Step2–MonthlyExpenses BeforeReduction AdjustedAmountHousing–mortgageorrentpayment $ $Utilities–electric,gas,water,phone,cellphone $ $Food–athomeandaway $ $Transportation–gas,carrepairs $ SMedicalCare–doctor,dentist,hospital,prescriptions $ $CreditandLoanPayments–loans,health,car,property $ $HouseholdOperationsandMaintenance–repairs,cleaningsupplies,etc.
$ $
ClothingandPersonalCare–clothes,laundry,toiletries,haircuts,etc. $
$
EducationandRecreation–movierentals,vacations,cable,schoolsupplies
$$
Childcareandallowances $ $
Miscellaneous $$
Savingsand/orfundssetasideforseasonalandoccasionalexpenses.Seeworksheet2
$$
B.TotalMonthlyExpenses $ $Remember,notallyourexpensesaremonthly.Propertytaxes,insurancepremiumsandholidaygiftscomeonceortwiceayear.It’seasytoforgetandthennothavethemoneytopayforthem.Worksheet2,“OccasionalandSeasonalExpenses,”canhelpyouidentifyandanticipatetheseexpenses.Youwillneedtosetasidesomemoneyinyourmonthlyspendingplantomeettheseoccasionalcosts.YouwillneedtocompletethisworksheetbeforeyoucanfinishWorksheet1B.
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OccasionalandSeasonalExpenses(Worksheet2)Somebigexpenseslikepropertytaxes(carandlandifnotincludedinthepayment),licenseplatesandcarinspections,anddifferenttypesofinsurancepremiumscomeuponlyonceortwiceayear.Othersareseasonal,suchasschoolclothesinthefallandholidaygiftsinDecemberandspecialholidaymeals.Someexpenses,likegifts,happenmoreoftenbutnoteverymonth.Usethischarttohelpyouestimatetheseexpensesandincludetheminyourspendingplan.Totalalltheexpenses,divideby12,andputthatamountintherowbeforeTotalMonthlyExpenses.Forexample,ifyourexpensesaddto$480,then480/12=$40.Youwouldenter$40intherowbeforetotalexpenses.
Worksheet2‐ExpenseAmountJanuary July
February August
March September
April October
May November
June December
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Step3—BalanceIncomeandExpensesAddupyouradjustedexpensesandcomparethetotaltoyourcurrentincome.Whenyourincomeisreduced,itmaybeverydifficulttostaywithinyourincome.Whatcanyoudoifyourexpensesaregreaterthanyourincome?• Cutbackonspending.SeePublication354‐098inthisseries,“Spending
Less,”forsuggestions,particularlyforreducingflexibleexpenses.
• Increaseyourincome.Whatarethepossibilitiesforpart‐timeortemporaryworktohelpsupplementyourincomeduringthisperiodofunemployment?Useyournon‐dollarresources.
• Lookatyourassets.Whatsavings,investmentsorpropertydoyouhavethatcouldbeusedorconverted
tocashtomeetexpenses?Keepinmindthatborrowingandusingsavingsmaybeonlytemporarysolutions.
• Reduceyourfixedexpenses.Iftoomuchofyourincomeisgoingtofixedexpensessuchashousingor
debtpayments,theremaynotbeenoughmoneylefttocoveryourotherlivingexpenses.Youmayneedtorefinanceyourloans,movetolower‐costhousing,orsurrenderthepropertytoyourcreditortogetoutfromundersomeofyourdebt.
Step3–BalanceIncomeandExpenses
TotalMonthlyIncome(1A) TotalMonthlyExpenses(1B) TotalMonthlyIncome(1A)shouldbethesameasTotalMonthlyExpenses(1B)
MakingYourSpendingPlanWorkOnceyouhaveaspendingplanthatsetsspendingamountsforessentialfamilyneedsandbalancesyourspendingwithyourincome,you’llhavetosticktoit.Writingitdownisnotenough.Youmustusetheplantoguideyourspending.Keeptrackofyourspendingtobesureyoudon’texceedthespendingamountsyousetinyourspendingplan.Keeparecordofwhatyouspendineachexpensecategorytobesureyoudon’texceedtheamountonyourspendingplan.Bykeepingtrackofwhatyouhavespent,it’seasiertocontrolyourspendingandlivewithinyourincome.
ManagingonaSeasonalorIrregularIncomeIfyouareself‐employed,seasonallyemployedorreceiveincomefromtipsorcommissions,yourfamilyincomemaychangealotfrommonthtomonth.Inthatcase,lookaheadandcarefullyestimateyourincome.Itmaybehelpfultoestimateyourincomeforawholeyearsoyoucanseewhenandhowmuchitchanges.
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Eventhoughyourincomemaychangefromonemonthtothenext,manyofyourlivingexpensesarethesameeachmonth.Thismismatchofincomeandexpensescreatesuncertaintythatcancausefeelingsofinsecurityandincreasefamilytension.Reducethisuncertaintybyestablishingamonthlyfamilylivingallowance.Useexpensesyouidentifiedaspartofyourspendingplantodetermineyourmonthlylivingallowance,orwhatitcostsyourfamilytoliveeachmonth.Whenyoureceiveincome,depositamajorportionofitinaspecialsavingsormoneymarketaccountwhereitwillearninterestbutstillbereadilyavailable.Then,payyourselfeachmonthbywithdrawingtheamountofyourfamilylivingallowanceandputtingitintoyourcheckingaccounttopayyourbills.Avoidthetemptationtospendmoremoneyinthemonthswhenyourincomeisgreater.Asafamilyonaseasonalorirregularincome,youmaywanttoschedulesomemajorexpensessuchasinsurancepremiums,clothingpurchases,andnon‐emergencymedicalanddentalcaretocoincidewithtimesofmoreincome.
SummaryLivingonareducedincomemaybetemporaryorprolonged.Gettingthemostfromyourincomeduringthistimerequirescarefulplanningandwisespendingdecisions.ReferencesBoelter,Linda.“SettingSpendingPriorities.”CooperativeExtension,UniversityofWisconsin‐Extension.1991.TexasAgriculturalExtensionService.“CopingwithUnemployment.”1986.Wilhelm,M.S.,D.R.Iams,andC.A.Ridley.“ChangesinConsumptionManagementDuringUnemploymentandTheirImpactonEconomicSatisfaction.”UniversityofArizona.1987.OriginalbyIreneLeech,ExtensionSpecialist,ConsumerEducation,VirginiaTech,withtheassistanceofDonCloud.Reviewers:CristinSprenger,ExtensionAgent,FamilyandConsumerSciences,AugustaCountyKimberlyCardwell,ExtensionAgent,FamilyandConsumerSciences,SpotsylvaniaCounty