Publication Number 354-100, June 1996
 Introduction |
| How Other Families Handle Reduced Income |
| Making a Spending Plan |
| Making Your Spending Plan Work |
| Managing on a Seasonal or Irregular Income
|
| Summary |
Introduction
Faced with a reduced income, you'll need to cut back on spending and develop a spending plan to help you pay your bills. If your income will be reduced for more than a month, adjust your spending habits to maintain control of your finances.
Many people try to hide financial problems from themselves or family members. Not facing your 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 your situation and actively seek solutions to your problems, despite the discomfort.
Because spending decisions affect the whole family, talk with your family about your situation. Let them know you need to change your 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.
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Studies show families respond to reduced income by cutting back on their spending. Spending for nonessentials such as luxuries, vacations, eating out, and home furnishings is eliminated or reduced first. As the period of unemployment or reduced income continues, many families also report reduced spending for basic needs including food, shelter, transportation and medical care.
Families also say they revise their budgets. Most make a new spending plan that includes a revised plan for getting the bills paid. This is a time when you may find it useful to use a written spending plan.
Fewer families report increasing their income or using more credit as ways to manage during unemployment. Borrowing or using credit to pay bills often brings only temporary relief. For those families who did increase their use of credit, the more they borrowed, the more unhappy they were with their financial situation.
The studies also found that families who quickly made changes in their spending habits were the most satisfied with how they were managing during unemployment. Families who didn't make changes felt more out of control and more dissatisfied.
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A spending plan is always an effective tool to help you get the most for your money. It is even more important when you have a sudden change in your income. A spending plan helps you:
Worksheet 1, Monthly Spending Plan, can help you set up a spending plan for your current income. By comparing your income and planned expenses before and after your income was reduced, you can see what changes are needed.
Add up your current total family income from all sources. Include Unemployment Compensation as well as income from other family members if it is used for family expenses. Use the take-home amount, or what you actually have to spend after deductions.
Do you receive income from any of these sources?
List your income now and before it was reduced on the spending plan worksheet.
Remember, not all your expenses are monthly. Property taxes, insurance premiums and holiday gifts come once or twice a year. It's easy to forget and then not have the money to pay for them. Worksheet 2, Occasional and Seasonal Expenses can help you identify and anticipate these expenses. You will need to set aside some money in your monthly spending plan to meet these occasional costs.
As you think about what you were spending and try to plan how much you can now spend, ask yourself these questions:
Adjust the amounts you spend in each expense category and enter the new amount in the column labeled "Adjusted Amount" on the spending plan worksheet.
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Keep track of your spending to be sure you don't exceed the spending amounts you set in your spending plan. Keep a record of what you spend in each expense category to be sure you don't exceed the amount on your spending plan. By keeping track of what you have spent, it's easier to control your spending and live within your income.
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Even though your income may change from one month to the next, many of your living expenses are the same each month. This mismatch of income and expenses creates uncertainty that can cause feelings of insecurity and increase family tension.
Reduce this uncertainty by establishing a monthly family living allowance. Use expenses you identified as part of your spending plan to determine your monthly living allowance, or what it costs your family to live each month.
When you receive income, deposit a major portion of it in a special savings or money market account where it will earn interest but still be readily available. Then, each month pay yourself by withdrawing the amount of your family living allowance and putting it into your checking account to pay your bills. Avoid the temptation to spend more money in the months when your income is greater.
As a family on a seasonal or irregular income, you may want to schedule some major expenses such as insurance premiums, clothing purchases, and non-emergency medical and dental care to coincide with times of more income.
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A spending plan, based on what you and your family consider to be most important, can help you balance your spending with your available income and resources. Keeping track of your spending will help ensure that you have the money for the things your family needs most.
References
Boelter, Linda. "Setting Spending Priorities." Cooperative Extension, University of Wisconsin-Extension. 1991.
Texas Agricultural Extension Service. "Coping with Unemployment." 1986.
Wilhelm, M.S., D.R. Iams, and C.A. Ridley. "Changes in Consumption Management During Unemployment and Their Impact on Economic Satisfaction." University of Arizona. 1987.
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Families Taking Charge is a multi-part series for individuals and families experiencing financial stress as a result of difficult economic times.