Shelly Barnes: Stay in financial control with this simple method

Shelly Barnes • Feb 20, 2018 at 5:04 PM

There are those people among us – the ones who have the discipline and presence of mind to make detailed plans and document their day-to-day financial activities with precision. You may know one or two, and if you happen to have one in your household, that person may know – to the penny – what you spent last month on gas, food and groceries.

Then, there are the others. They struggle to find either the time or the wherewithal to get a spending plan down on paper, much less track their monthly spending to make a comparison. If you are one of those people – and many of us are – all is not lost. 

According to 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 said the system is simple and flexible, while requiring minimal time for writing a monthly spending plan and recording spending. 

But, she said, 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 recommended 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 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 said. “Early savings can pave the way to a lifetime of financial stability and a secure retirement.”

To learn more about budgeting and to take the Tennessee Saves pledge, visit tennesseesaves.org.  

UT Extension provides a gateway to the University of Tennessee as the outreach unit of the Institute of Agriculture. With an office in every Tennessee county, UT Extension delivers educational programs and research-based information to citizens throughout the state and provides equal opportunities in all programming and employment. In cooperation with Tennessee State University, UT Extension works with farmers, families, youth and communities to improve lives by addressing problems and issues at the local, state and national levels.

For more information on this or other family and consumer sciences-related topics, contact Shelly Barnes, family and consumer sciences Extension agent for UT Extension in Wilson County. Barnes may be reached at [email protected] or 615-444-9584.

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