Families Taking Charge: Setting Spending Priorities · 3 Monthly Spending Plan (Worksheet 1A) Step...
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2009 Virginia Polytechnic Institute and State University 2902-7022 Virginia Cooperative Extension programs and employment are open to all, regardless of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status. An equal opportunity/affirmative action employer. Issued in furtherance of Cooperative Extension work, Virginia Polytechnic Institute and State University, Virginia State University, and the U.S. Department of Agriculture cooperating. Mark A. McCann, Director, Virginia Cooperative Extension, Virginia Tech, Blacksburg; Alma C. Hobbs, Administrator, 1890 Extension Program, Virginia State, Petersburg. Families Taking Charge: Setting Spending Priorities Revised By Celia Ray Hayhoe, Ph.D., CFP®, Family Resource Management Specialist Faced with a reduced income, many families wait six months or longer before they reduce their spending, accumulating debt and unpaid bills. Families need to cut back on spending right away by developing a spending plan to help pay their bills and living expenses. Many people try to hide financial problems from themselves or family members. Not facing problems can be very destructive because the worry and stress caused by financial uncertainty and lack of cash may be worse than the financial problem itself. It’s important to look realistically at the situation and actively seek solutions to problems, despite the discomfort. Because spending decisions affect the whole family, talk with the family about the situation. Let them know the family needs to change their spending. Involve them in deciding spending priorities. If family members understand the tough choices that must be made and have a voice in making the decisions, they will be more willing to accept the decisions. As your family talks about what is most important, be sure to listen to what others say. Supporting each other can help you pull together as a family and get through these hard times.
Transcript of Families Taking Charge: Setting Spending Priorities · 3 Monthly Spending Plan (Worksheet 1A) Step...
2009 Virginia Polytechnic Institute and State University 2902-7022 Virginia Cooperative Extension programs and employment are open to all, regardless of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status. An equal opportunity/affirmative action employer. Issued in furtherance of Cooperative Extension work, Virginia Polytechnic Institute and State University, Virginia State University, and the U.S. Department of Agriculture cooperating. Mark A. McCann, Director, Virginia Cooperative Extension, Virginia Tech, Blacksburg; Alma C. Hobbs, Administrator, 1890 Extension Program, Virginia State, Petersburg.
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
