In tough economic times, planning is key

Helping you connect the challenges you face at home with solutions

By Shirley Anderson-Porisch

When financial times look bleak, a spending plan is a strategy needed by anyone who spends money--no matter what the income. I use the family spending plan strategy with 99 percent of families with whom I work in financial counseling. My focus is not about how much money they have, it is always about how to manage the money they have.

Spending planning is a management tool. Whether you call it a budget or cash flow statement, a spending plan is set up one month at a time, because income and a majority of expenses for families occur on a monthly basis. The plan compares monthly net income to eight monthly expense categories. Common categories for families include:

• set-aside funds (savings)
• housing
• transportation
• health
• food
• payments/fees
• personal
• recreation/entertainment

Find the total of each expense category and compare what percent of net income goes for that area of spending. The goal is to balance net income with monthly expenses.

Many families with whom I work are dealing with the high cost of housing expenses--many facing foreclosure. When determining your housing expenses include mortgage, heat, utilities, telephone, taxes, insurance, etc. For families in crisis, housing expenses usually take more than 50 percent of net monthly income leaving little or no money for other expenses.

A balanced spending plan would have roughly 40 percent of net monthly income going towards housing. It if exceeds that, there may not be income left for other expenses. On average, that would leave 20 percent for food, 20 percent on transportation with variable percents on other expense categories. For some families, the reality is that the total percentages often exceed 100 percent of net income --which means it is time for a change.

If your family resembles this reality and is having difficulty balancing monthly income and expenses, make a plan for making changes to your spending where you can. Try to find ways to save money, such as spending less on recreational activities, or not driving as frequently. A revised spending plan can get you going in the right direction.

Shirley Anderson-Porisch works as a family resource management Extension educator at the University of Minnesota and is an expert in family finance. She has long been a media contributor and is an accredited financial counselor.

Adapted from the column Connect @ Home