By VICKIE CLARK
Question: Is there any simple method to stay in control of my finances that doesn’t require a written budget?
Answer: There are those people among us who have the discipline and presence of mind to make detailed plans and know, to the penny, what they spent last month on gas, food, and groceries.
Then there are the others. They struggle to find either the time or discipline to get a spending plan down on paper, much less track their monthly spending to make a comparison. If you are one of those persons — and many of us are — all is not lost. According to Dr. Dena Wise, Consumer Economics Specialist with The University of Tennessee Extension, you can still keep a grip on your finances if you crunch some numbers initially, and keep some basic information in your head.
There are two basic steps to simple budgeting:
Step 1 — Calculate your bottom line. First of all, you should determine the minimum amount you need to get by every month. This number is the approximate total of your usual monthly cost for housing, transportation, dependent care, food prepared at home, out-of-pocket health care, paying down debt, charitable or church commitments, and contributions to emergency and long-term savings. Subtract this number from your monthly take-home pay. You don’t have to make decisions about how you will spend this amount, consider it gone when you get your paycheck. The amount you really have to make choices about is what is left from your monthly take-home pay after you’ve subtracted what it takes to live on. Experts call it your “discretionary income.”
Step 2 — Allocate your discretionary income. You can be flexible with your discretionary income. It’s available for extra expenses such as eating out, entertainment, clothes or household purchases; for extra saving or investing; or for extra giving. In fact, allocating this amount to weekly or monthly cash makes it easy to tell when you are reaching the limit of your discretionary spending.
Wise says that the system is simple and flexible, while requiring minimal time for writing a monthly spending plan and recording spending. But, she says, you do need to be aware of some issues that might arise. You need to give extra thought to being prepared to handle expenses that are necessary, but that don’t occur on a monthly basis. Examples of these periodic expenses are car insurance, auto maintenance, school expenses, and holiday spending. Wise recommends estimating the yearly cost of all these expenses and stashing a monthly contribution toward covering them into your emergency or regular savings.
The other risk of using the system, according to Wise, is that if you have enough income to provide a large amount of discretionary spending, you may be tempted to live lavishly rather than stashing it away for your financial future. “Particularly when you are young and your investments have potential to grow over a number of years, it’s always wise to spend frugally,” Wise says. “Early savings can pave the way to a lifetime of financial stability and a secure retirement.”
Vickie Clark is the Director of the Carter County UT Extension Office and also serves as the Family and Consumer Sciences Agent. If you have questions or need any information related to Family and Consumer Science contact her at the UT Extension Carter County, 824 East Elk Ave., Elizabethton, call 542-1818 or email at vclark@utk.edu.