A spending plan or budget is something many of us prefer not to think about; it can be very scary to lay out your finances in black and white. If you don’t look at the numbers that say you’re out of balance, then you don’t have to think about the possibility that you are not living within your means. You could blame it on your job and complain you don’t make enough money. And that might be true. However, your salary may not be the problem. It could be your spending habits that are at fault.
It is very important for everyone to know where their money is going, whether they make a little or a lot. With the recession still in full throttle, now is the time for you to “mind your own business.” You may have never looked at it from this perspective, but you, a person, are a business of sorts. You will make “x” amount of dollars over a lifetime, and spend “x” amount of dollars as well. Whether your lifespan shows a profit margin or deficit is entirely up to you. Start treating yourself as legitimately as you do your workplace, and make financial decisions with the same discipline you are required to show at work. In order to hold yourself accountable, develop and use a spending plan.
The first step is to look at your expenses. There are three different kinds of expenses that everyone pays. Fixed expenses are the bills you pay every month that don’t change. Your rent or mortgage, car payment, utilities, car insurance, and child support are some examples. Make a column and write down every bill that fits into this category, and next to it write the amount you pay. Then total the expenses at the bottom of the column.
Column two is for your flexible expenses. These are the things you purchase that vary from week to week or month to month, depending on need, the season, and desire. Flexible expenses include food, clothing, personal products, pet care, medical expenses, credit cards, and transportation costs (like gasoline). Since these costs are not the same every month, you have to average weekly expenses and multiply times four to get a monthly cost. For example, let’s say you spend about $75 per week at the grocery store. That means your monthly cost for food from the store is $300. You should have another line item for money spent on eating out. If you average $40 per week on pizza and take-out, multiply that times four and your monthly expense for food eaten outside the home is $160. Total food expenses for your family for one month equal $460. List all the flexible expenses you pay every month and total that number at the bottom of column two.
Last, but not least, are your occasional expenses. These are the items you may spend money on once or twice a year, but don’t necessarily need every month. Examples include your driver’s license renewal, oil changes, birthday and Christmas gifts, entertainment costs, and back-to-school fees and supplies. The best way to approach this column is to start with a piece of paper divided into 12 boxes. Label each box with a month of the year. Then start writing in each box the things you spend money for in just that month, and how much it costs you. For example, in May you might write renewing your license and buying your Mother a hanging basket of flowers for Mother’s Day. December would include Christmas expenses. Try to remember every time you spend money on friends or family, take a vacation, change the oil in your car, or pay someone to mow your lawn or rake leaves. Add up the whole year of expenses and divide by 12. This will help you average out how much you need each month to meet those occasional needs.
Now comes the tough part. Add up the numbers from columns one, two, and three and see how much you spend per month. Compare this to your monthly income. Hopefully the income is higher than the expenses. If it isn’t, you have two options. One is to reduce your expenses. Can you cut some things back, like eating out or going to the movies? Would your family buy clothing or shoes somewhere less pricey? Explore every category to see where you can make cuts.
Option two is make more money. Can you work a second job? Do you have any skills you can provide to others in return for payment, such as carpentry or plumbing? What about other family members? Can your children work small jobs such as a paper route to pay for some of their expenses, like clothing and cell phones?
Lastly, consider looking into debt consolidation. If a lot of your money is going to payments on credit cards, you may need to contact an organization such as Consumer Credit Counseling (now called Apprisen) to see if they can help you reduce the amount you pay every month. They can’t reduce the balance on your cards, but they can help reduce the interest rate you pay and consolidate your payments, thereby enabling you to bring down your balances much more quickly.
All of us know family members and friends who have been affected by layoffs and cutbacks. Businesses, schools, and governments have all had to make hard decisions to balance their bottom lines. Your business is no different. Treat yourself with the same professional care, and you will feel much more empowered regardless of what is going on around you.
Submitted by:
Donna Green
Extension Educator, Family and Consumer Sciences
Ohio State University Extension
