Rowe, Barbara R.

English

DigitalCommons@USU

1Adapted from When Your Income Drops, written by Barbara Rowe and Denise Schroeder, PurdueUniversity Extension Service, West Lafayette, IN 47906.1February 2002 FL/FF-I-05 SETTING NEW PRIORITIES FOR SPENDINGBarbara R. Rowe, Ph.D.Professor and Family Resource Management SpecialistUtah State University1If you or your family are faced with areduction or loss of income, you’ll need todevelop a plan to help you meet your everydayexpenses. It isn’t easy. Sometimes people try tohide financial problems from themselves or otherhousehold members at crisis points. However, notfacing problems can be very harmful because theworry and stress caused by financial uncertaintyand lack of cash may be worse than the financialproblem itself. It’s important to look realisticallyat the situation and actively seek solutions to yourproblems, despite the discomfort it brings.Because spending decisions affecteveryone who lives in your household, it isimportant to communicate openly with them aboutthe situation. Let them know everyone needs tochange their spending patterns. Involve everyonein deciding spending priorities, even children. Iffamily members understand the tough choices thatmust be made and have a voice in making thedecisions, they will be more willing to followthrough on them.As members of your household talk aboutwhat is most important, be sure to listen to whatthey say. Supporting each other can help you pulltogether and get through this rocky patch.How Others Handle Reduced IncomeResearch shows that individuals andfamilies respond to reduced income by cuttingtheir spending for non-essential items first.Vacations, eating out, recreation and homefurnishings are eliminated before basic needs suchas food, shelter, transportation and medical care.When dollars are scarce, people say theyrevise their budgets. Most families make a newspending plan that includes strategies for gettingbills paid. It may be as simple as marking the duedates of fixed bills on the calendar to be sure theyare paid on time and then hanging the calendar ina conspicuous place like the front of therefrigerator. Fewer people report increasing theirincome or using credit to manage finances.Borrowing or using credit cards to pay bills bringsonly temporary relief. In studies of financialstress, people who increased their use of creditwere more unhappy with their financial situation2the more they borrowed. Those who quickly madechanges in their spending habits were the mostsatisfied with how they were managing. Thosewho didn’t make changes felt more out of controland more dissatisfied.Making a New Spending PlanCreating a spending plan is not difficult.The major requirements are income and spendingrecords, a knowledge of family spending goals andpriorities, and a certain amount of patience anddiscipline to get the plan started and to see itthrough. Financial counselors point out that themost difficult and time-consuming step in anyfinancial activity is the first one–getting started.Once underway, chances are any required record-keeping will only take an hour a week or less. Itmay only require writing flexible expenses forthings such as food or transportation on thatfamily calendar. After a month, you will have afeel for cash flow and can discuss how expensescan be changed to adjust to the current income.Work may be needed. Look back throughcheckbooks, receipts or charge account records foramounts spent on clothing, long-distancetelephone calls, entertainment, personal careitems, and expenses that don’t occur very oftenlike property taxes. As you begin cutting back andkeeping track of outgoing dollars, put a shoe box,empty restaurant-sized peach can, or a spindle forstoring labeled receipts.As you think about how you are spendingand try to plan how much you can now spend,think about these questions:• Which expenses are essential to thefamily’s well-being?• How much can you afford to spend in eachcategory?• Are there opportunities to cooperate withothers by trading or sharing what we cando or learn to do?• Can we substitute a less costly item?• Can we do without or do it less often?When members of your household begin tosee how money was and is being spent, it is timefor a conference. Lay out the records ofanticipated monthly income and expenses for allfamily members to see and evaluate. Subtractexpenses from income. Is the remainder positiveor negative after all expenses are subtracted frommonthly income? Use Worksheet 1 to develop orreadjust your spending plan.It’s easier to see the general pattern ofspending if expenses are categorized. This revealsthe percentage of income spent on food, housing,clothing, medical care, insurance and other items.There can’t be any hard-and-fast rules forhousehold spending because individual needs,tastes and economic circumstances are soimportant. However, examining spending by eachcategory does highlight differences between statedgoals and priorities and actual spending patternsand income. If your household is operating “in the red”month after month, a couple of things musthappen–expenses must be reduced, income mustrise, or both. Do you have savings that can be usedto meet expenses in an emergency? Are thereassets you could sell to help out with expenses?What are the possibilities for part-time ortemporary work to supplement your income? Aresome expenses out of line with stated priorities orexpected income? Where can cuts be made so theycause the least sacrifice in household well-being?If too much of your income is going tofixed expenses such as housing or debt payments,there may not be enough money left to cover yourother living expenses. You may need to refinanceyour loans, move to lower-cost housing, orsurrender property to creditors to get out fromunder your debt.Some big expenses like property taxes andinsurance premiums come due only once or twicea year. Others are seasonal, such as school clothesin the fall and holiday gifts in December. UseWorksheet 2 to help you estimate these expensesand include them in your spending plan.3WORKSHEET 1: Income/Spending PlanIncomeGross salary $_________Interest income _________Dividends _________Business/profit sharing _________Profit from rental property _________Profit from sale of assets _________Alimony/child support received _________Annuities _________Pension/retirement funds _________Social Security _________Disability insurance payments _________Cash gifts _________Other income ____________________________________Total cash income $_________ExpensesFederal taxes $_________Social Security (FICA) _________State income taxes _________Property taxes _________Other taxes _________Rent/Mortgage _________UtilitiesGasTelephoneWaterGarbage & sewerElectricityProperty insurance _________Household maintenance _________Furniture/appliances _________Other housing expenses _________Savings _________Investments _________Retirement account(s) _________Future goals _________Automobile expensesLoan payments _________Insurance & licenses _________Tires, maintenance, repair _________Food _________Clothing _________MedicalHealth insurance _________Doctor _________Dentist _________Prescriptions _________Life/disability insurance _________Child care expenses _________Child support/alimony paid _________Recreation, hobbies _________Personal care _________Education, books _________Bank loans _________Charge accounts/credit cards _________Gifts _________Charitable contributions _________Business/professional expenses _________Personal allowances _________Miscellaneous (HOK) _________Total expenses $________ TOTAL INCOME $_________LESS TOTAL EXPENSES _________DIFFERENCE $_________4Worksheet 2: Occasional and Seasonal Expenses  Expense Amount Expense AmountJanuary JulyFebruary AugustMarch SeptemberApril OctoberMay NovemberJune DecemberUtah State University is committed to providing an environment free from harassment and other forms of illegaldiscrimination based on race, color, religion, sex, national origin, age (40 and older), disability, and veteran’s status. USU’s policyalso prohibits discrimination on the basis of sexual orientation in employment and academic related practices and decisions.Utah State University employees and students cannot, because of race, color, religion, sex, national origin, age, disability,or veteran’s status, refuse to hire; discharge; promote; demote; terminate; discriminate in compensation; or discriminate regardingterms, privileges, or conditions of employment, against any person other wise qualified. Employees and students also cannotdiscriminate in the classroom, residence halls, or in on/off campus, USU-sponsored events and activities.This publication is issued in furtherance of Cooperative Extension work. Acts of May 8 and June 30, 1914, in cooperationwith the U.S. Department of Agriculture, Jack M. Payne, Vice President and Director, Cooperative Extension Service, Utah StateUniversity. (EP/DF/02-2002)

Setting New Priorities For Spending

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Setting New Priorities For Spending

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