Year end financial review: Part 2
Are you coming up short on dollars each month to pay for basic needs?
Planning – Prioritizing – Practice. Use the three “P’s” to improve your financial situation. Part I covered Planning. This article focuses on Prioritizing and Practice.
Prioritizing needs and wants is the beginning. Get everyone in the household involved. Categorize all expenditures. Use these six categories for the first draft of a household budget.
- Housing (rent or mortgage payment, utilities and maintenance)
- Transportation (vehicle costs – gas, loan payment, insurance, repairs; bus tickets)
- Health and Nutrition (groceries, food eaten out, medications and health care)
- Kids basic needs (clothing, school supplies, activity costs)
- Maintenance (home, vehicle, or other periodic or unexpected expenses)
- Everything else you want and have spent money on previously – recreation, vacations, toys, birthday parties/gifts, wedding/anniversary gifts, special events, eating out, etc.
After putting expenses into categories, scrutinize them carefully. This is the real prioritizing part. Color code each expense: green for needs; red for wants. Seeing your needs versus wants in writing is part of the process of eliminating frivolous expenses. If income doesn’t cover basic needs, it’s time for change.
Practice delayed gratification. Only purchase what you can afford. Revise the first draft of the household spending plan so that expenses do not exceed income. Put all remaining expenses on a separate list for future consideration.
Set a responsible example for children to manage their own money. Start the new year with a balanced operating budget. They will learn with you. Let children have a role keeping the family living within a balanced budget. Ask school age children and teens if there is anything they could do to contribute to the household needs? Maybe they will earn extra money for special things, or they could help reduce expenses by conserving energy use. Work as a household to develop lifelong values of responsibility, caring and respect.
The local county offices of Michigan State University Extension continue to bring knowledge to life. Get to know your county Extension staff; they can connect you with a world of resources through technology. For financial management tools, to create a balanced budget, go directly to www.mimoneyhealth.com. Click on “Your Financial Plan” at the left column; then, select “Monthly Budget.”