Articles > Getting Through Tough Times

Cutting Expenses and Increasing Income

There are steps you can take to get a handle on your finances – and your financial stress. The very first step is to figure out if your income covers all of your current expenses. An increase in expenses or a drop in income usually means a change in lifestyle. The sooner you look at your household budget, the more options you have and the better off you will be in the long run. Once you have a better understanding of where your money is going, it’s time to look at ways to make the best use of your hard-earned dollar.

Cutting Expenses

If you find that your expenses are more than your income, you can take steps to develop a spending plan and move toward balancing your budget.

Begin by listing your expenses, starting with expenses that provide basic needs for living. Some of these are fixed, such as rent or mortgage payments, car payments, or installment loan payments. Some are variable, such as clothing or consumer goods. These expenses have some flexibility.

It is important to know what you are currently spending to find ways to reduce spending and balance your budget. “The most important step is to write it down,” says J. Michael Collins, family and consumer economics specialist with the UW-Madison Division of Extension. “Once you have it on paper you have a much better sense of where the money goes. Pick one week and track everything you spend. You will probably be surprised.”

When you are listing your expenses don’t forget those irregular expenses that might not be due on a monthly basis; for example, auto insurance that is due quarterly.

Label your receipts by categories, and sort them on a regular basis, such as weekly or monthly. Add up totals in each expense category and record the amounts in a notebook, ledger or computer spreadsheet. Compare them with the planned amounts from a spending plan. Other methods, including computer software programs, exist for tracking spending.

All strategies, however, work most effectively when you:

  1. Keep records simple and avoid unnecessary detail
  2. Appoint one person in the household to assume responsibility for recording family expenses
  3. Set a regular time schedule for record keeping
  4. Analyze expenditures regularly, checking to see if all expenditures are listed, if all financial obligations are being met, and whether you are spending within your income.

After you have your list, the next step is think about what can be reduced or completely cut out. Think about how a repeating weekly or daily expense will add up over an entire year. That $3 coffee could be more than $500 per year, for example.

“Try to be critical of yourself,” says Collins. “Realistically consider your situation and imagine how easy or hard it would be to give up cable TV, eating out or even a second car.”

It is essential to involve family members in this decision-making process. The whole family needs to be on board. The new spending plan will be more successful if family members are part of the decision-making and planning. They will then understand the need to make the tough choices.

How can you save more?

  • Buy gently used clothing. Instead of spending $60 or more on name brand jeans with holes, your teenager may find “cool” jeans for $6.
  • Save on energy costs. Turn down the thermostat 5 degrees. Turn off lights or a television when no one is in the room to save money on the electric bill.
  • Deferring on a repair or doing it yourself. If you don’t have the skills or the tools, perhaps there is a neighbor or friend that can help.

It is essential to stick to your spending plan. With less income, each spending decision is critical. Finding ways to pinch pennies can add up to dollars you can use to make ends meet.

Even in good economic times, financial experts recommend a spending plan for effective money management. But good financial planning is an even more essential tool in tough times. Setting priorities for spending is a necessary step in finding a way to balance your budget-especially when you have less money available to spend.

Use The-Wallet-Tracker to better track your spending.

Are You Between Jobs?

Losing your job or facing a drastic drop in income is one of the most stressful events a person can experience. Unemployment can mean sudden lifestyle changes for the entire family. Because there is less money to spend, you must decide how to spend what you have. Whatever changes unemployment brings, everyone feels the impact.

When you are between jobs, the paychecks may stop coming, but the bills don’t. When you don’t have enough to cover your monthly expenses and pay creditors, you face some tough financial decisions.

“Concern about how to pay day-to-day expenses can become overwhelming,” says J. Michael Collins, University of Wisconsin-Extension family and consumer economics specialist and assistant professor of consumer finance at the UW-Madison School of Human Ecology. “Credit cards or a home equity loan may provide some financial resources for a short time, but many lenders are cutting back on credit offers. Unless your situation turns around quickly, more debt only creates bigger payment obligations later.”

Instead, focus on cutting your spending. Make a spending plan so you can pay bills when they are due and avoid late fees. If you cannot make payments, call your creditors to ask if they can reduce your payments temporarily until your situation improves.

“Every minute counts, says Collins. “Taking charge of your new financial situation is a the most important contribution you can make to your family’s well-being, and basic money management will help reduce stress as you adjust to living on less income.”

Below are some specific steps you can take

  1. Talk openly with your family about the situation. Be optimistic but honest about how long money will be tight. Include kids in the conversation so that everyone understands and supports the reductions being made.
  2. Reduce your expenses. Consider your “needs” versus “wants.” The little things add up; consider that if you reduced spending on something simple, such as packing a lunch instead of buying one, you could save $5 or more a day to save $1,825 per year!
  3. Restrict the use of credit to emergencies; otherwise you will have a deeper hole to dig out of later. But a critical home or car repair, or health emergency, may leave little choice.
  4. If you think you may have difficulty with payments to creditors, talk to them right away. Have these conversations before you fall behind on payments. Creditors will often accept a partial payment which can make a difference to your credit rating-and will cut down on the stress of avoiding creditors.
  5. Consider selling property or assets, especially if you can use it to pay off debt or reduce expenses. For example, selling a boat could pay off a boat loan and reduce maintenance and storage costs.
  6. Consider ways to boost income. Can your spouse or partner find employment or more income? Can you find part time or contract work? Even low-wage jobs can help.
  7. Make sure you have health care coverage. Explore low-cost options through employers, as well as state programs such as Badger Care. Learn more on the website.

Find out what community resources are available to help extend family resources.  Visit the website to see what state programs you qualify for.

See the Managing Between Jobs Series at Extension’s Publications Store.

Additional Resources

Cutting Back and Keeping up When Money is Tight

Tax Credits for Wisconsin Residents

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