Is Your Spending Plan Working?

A spending plan (aka “budget”) is a key to taking control of your money. But it’s not enough to make a spending plan. To get results, you need to go the next step and work your plan.

Think about it: you could make a plan that works out perfectly on paper — all your bills are paid, you have enough money for needs like groceries and gas and also some fun, AND you also put some money toward your longer-term financial goals. However, if your plan calls for spending $500 a month on groceries, and you actually spend $700 on groceries, then your plan is wrecked. You’ll end up with unpaid bills, unmet needs, and/or zero progress toward your goals. Even a “perfect” plan is no good if you don’t follow it.

Following a spending plan doesn’t have to be difficult, but it does take some attention: you’ll need a strategy to help you stay within the spending limits of your plan. In other words, you’ll need some method of tracking or monitoring your spending.

Let’s stick with the grocery example above. Perhaps we go to the grocery store 6-8 times during a month. If we want to make sure we keep our grocery spending below $500, we’re going to need some type of on-going record of what we’re spending. Maybe we just keep a list of grocery spending. Maybe we use a paper ledger form, an excel spreadsheet or a purchased software program. Maybe we use an app on our phone designed for that purpose. We could even put $500 cash in an envelope and only buy groceries using that cash — that way we would be unable to spend more than we planned.

A note of realism: unexpected events can interfere with our plans. A grocery example: suppose relatives decide to come visit you for a weekend. Suddenly your original grocery allotment of $500 might no longer be sufficient. Your plan will need to change. It’s your plan – you are free to change it if you need or want to change it! And here’s the good news – that change doesn’t have to wreck your plan! By keeping track and being aware that you are spending extra on groceries, you will know that you need to reduce your spending in some other area to compensate for your extra grocery spending. You will adjust your overall plan intentionally to accommodate the change.

Finding the right tool. There are multiple tools and strategies available to help with following your plan; different tools suit different people, so consider what will be most workable for you. The ISU Extension publication “Tracking Your Spending” provides a helpful overview of basic methods. Because no publication can keep up with the ever-changing landscape of software and mobile applications, some online research will be needed if you want to explore and compare those options.

For Iowans who would like help with making and following a spending plan, Extension specialists are available for one-on-one consultations, either in person or via phone or zoom. Don’t hesitate to contact us!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Inflation: Choose Your Changes

Someone asked me a couple weeks ago whether I had written a blog post yet on inflation, which has certainly been in the news lately. My first thought was “Well no – there’s nothing we can do about inflation, and we can’t foresee the future… so what could I write?” It dawned on me later that in fact there ARE some points I can share to help us all deal with higher prices.

If prices go up and our income doesn’t increase enough to keep pace, it’s a lot like getting a pay cut. Our normal patterns of spending and saving no longer work – something has to change. For some people the change involves minor sacrifice – perhaps eating out fewer times a week, or at less-expensive restaurants. For other people, higher prices may mean much more challenging changes.  The good news is that at least YOU are the one who gets to decide what changes to make. Ideas for making the changes less painful:

  1. You may be able to use non-monetary resources to meet some of your needs. For example, if you usually buy birthday cakes for your family, perhaps you can make them instead. OR perhaps you have a friend who could make the cake in exchange for you watching her children one Saturday.  Think about ways in which you can use your own time and energy and skills to accomplish things that you usually pay for. And remember that your friends also have skills they may be willing to share. Common examples include: cooking from scratch rather than using convenience foods, shoveling your own snow instead of paying someone else, learning to cut family members’ hair to avoid the cost of regular haircuts, giving gift certificates for your time and talent (I’ll bake you a pie!) in place of purchased gifts.
  2. Make use of community resources that are available. Even if you have never before applied for energy assistance or used the free tax preparation available in your community, when times are tight, using these services and others can make a big difference.
  3. Careful shopping can make limited funds stretch further. Even with increased prices, retailers still have sales, and generics are still less expensive than brand names. Sometimes changing where we shop and what brand we buy makes it possible to save money even without severely cutting back our shopping list.
  4. When the reality is that we are going to need to “do without” something, we can consider our priorities and choose what to keep and what to give up. One person might “give up” their morning stop at a coffee shop, so they could continue to pay for their streaming services or premium cable; another person might make the opposite choice.
    Recognizing that we have a choice can help our attitude: we don’t “have to” give up anything; instead, we choose what to give up. For example, instead of feeling deprived about not going out for lunch every day, we can feel proud about bringing lunch to work so that we can continue to use funds for something more important.

This short list is only a starting point. We would love to have you share your strategies for dealing with inflation! Please share in the comments!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Thanks Giving: Give Wisely and Deduct

The Thanksgiving holiday is a time to stop and really notice how much we have to be thankful for. Many people take that gratitude a step further by sharing from what we have; they take their “thanks” and turn it toward “giving” to worthy charities this time of year. The arrival of “Giving Tuesday” next week also prompts people to give.

An article from the Iowa Attorney General’s office this week (see item 5 in the article) reminds us of steps to ensure we give wisely. Careless gifts may end up in the hands of criminals OR of organizations that do not use funds wisely. One way to make sure your money is used well for the cause you care about is to give to a local organization that has a good reputation. When giving to national organizations, you can make sure they are well-managed by checking one or more of these reputable charity rating sites: BBB Wise Giving AllianceCharity NavigatorCharityWatch, and GuideStar. The article offers more suggestions as well.

Another way to give wisely is to take the tax deduction for which you are eligible! Some people may say, “I don’t give to charity just for tax purposes – I give because I care!” That’s great. But if you take the tax deduction, and it reduces your tax bill (or increases your refund), then you have MORE money to give! Now that is wise giving!

The tax code allows us to deduct (subtract) our charitable gifts from our income before the tax is calculated. The government created that deduction to encourage us to give. By taking the deduction, and potentially having more to give, we are contributing to the valuable American habit of supporting worthwhile causes. There are two ways to deduct your charitable contributions:

  1. By “Itemizing” your deductions on Schedule A of your tax return. This is great for people who have enough deductions to be higher than the “standard” deduction allowed according to family type. For a single individual, that standard deduction is $12,550; for a married couple, it’s $25,100. Your tax preparer can help you know if this is advantageous for you.
    Good news! Even if you are better off with the standard deduction, a new law lets you deduct some 2021 giving anyway!
  2. Thanks to some of the COVID-relief legislation passed in 2020 and 2021, taxpayers can take a deduction for charitable contributions in 2021 even if they don’t itemize deductions! An individual tax filer can deduct up to $300 of monetary contributions to qualifying charities; for married couples filing jointly, that figure is $600.

In the midst of your Thanksgiving celebration, I encourage you to think about any charitable giving you might want to do, and then when you make the gift(s), be sure to keep the receipt for tax purposes! Plan now for #GivingTuesday and beyond!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Money Smart Holiday Shopping

With the approach of the annual event known as Black Friday, guest blogger Carol Ehlers offers tips to help us all be smart about our holiday shopping!

This year, holiday shoppers are planning on spending more money, shopping earlier and trying new retailers. According to TransUnion’s 2021 Consumer Holiday Shopping Report more than 1 in 3 holiday shoppers (36%) plan on spending more this year. Last year’s average American ran up holiday spending debt to $1,381 with almost 8 in 10 unable to pay it off by the end of January. So, for every $5 spent trying to pay off credit card debt, consumers give away $1 to the credit card companies. https://www.consolidatedcredit.org/webinars-and-seminars/holiday-survival-guide-webinar/

Holiday spending is a common way for people to land themselves in debt and financial stress. Some find themselves in trouble by rationalizing big spending and incurring debt during the holidays. This leads to paying for holiday spending well into the next year. Money Smart Holiday Sending can give you confidence to manage your money and resources throughout the season and into the new year. Below are three key tips for being Money Smart during the holiday season:

  • Create a holiday budget. Figure out how much you can afford to spend this holiday season. Financial planners recommend spending less than 1.5 percent of your annual income on holiday expenses. An example: for someone with $35,000 gross income that amounts to a $525 limit for holiday spending. If you haven’t saved that much, look for ways to cut back.
  • Make a List-check it twice. Make a detailed gift list with a set amount to spend, keeping track of what is spent. Research indicates consumers reduce their food expense by 25-30% by using a shopping list and this principle applies to other holiday spending categories.
  • Use Cash-Not Credit.  One way to do this is the envelope method. Make one envelope for each person and only put in what you plan to spend. If credit is necessary, charge only the amount that you can safely repay in a few months. Limit your charges to one card with the lowest interest rate and fees. Keep all receipts.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Health Insurance Decision Time

Once again it is time to make health insurance decisions. If you are insured through your workplace, your deadlines will be determined by your employer. If you are insured through Medicare (including Medicare Advantage plans), you have between now and December 7 to make changes; your best resource for unbiased assistance in Iowa is the Senior Health Insurance Information Program. Similar resources are available in other states, as well.

If you are not yet eligible for Medicare, and do not have affordable insurance available through an employer, then the Health Care Marketplace is the place to turn for quality health insurance plans* that do not consider pre-existing conditions. The base premium for plans in the Marketplace is affected by your location, your age, and use of tobacco. That is because health care costs vary by location, and are higher for people who are older and who use tobacco. Two other factors also affect your cost:

  • Type of plan (bronze, silver, gold, platinum) you choose. All of these plans are quality* plans, but it is valuable to understand the difference. Bronze plans have the lowest premiums, because they have higher deductibles and co-payments. Premiums increase as you go up in metal value. Platinum plans have the highest premiums, but lower deductibles and co-pays. This post from 2014, when the Health Care Marketplace was new, provides more detail.
  • Your income. That’s right. Two people might pay different premiums even if they are both 30-year-old non-smokers who live in the same county and both chose a silver plan. The Marketplace is designed to provide more help in paying for health insurance to people who need it more. So when you enroll in a Marketplace plan, you will estimate what your household’s income will be for 2022. Based on that estimate, the system determines what your share of the premium for a silver plan should be, and the remaining amount will be covered by an Advance Premium Tax Credit, which is an estimate of how much help you are eligible for. All this is based on a baseline silver plan; you will get the same amount of help toward your premiums regardless of what “metal color” plan you choose. At the end of they year, your tax return will show your actual total income for the year. The actual income will be used to determine your final Premium Tax Credit amount. If you received too much or too little in advance, the difference will be taken care of on your tax return, by either increasing or decreasing your tax refund or the amount of tax you owe when you file. The Kaiser Family Foundation offers a useful tool to give you an idea of how much help you may be able to receive.

Open enrollment for 2022 health plans in the Marketplace continues through January 15, but if you want your coverage to begin as early as possible (January 1) then you need to enroll by December 15. Enrolling between December 16 and January 15 will get you coverage that begins February 1. Enroll online at www.healthcare.gov OR call 800-318-2596. A link is also available to find local help. You have the option to choose (filter) whether you wish to find an agent/broker OR would rather get help only from an assister.

*What do I mean by “quality” plans? The biggest factor is that a quality plan covers all ten essential types of health care. By contrast there are plans (sometimes referred to as “junk plans”) that purport to provide health coverage, but exclude certain categories. I’ve heard of situations where people are excited to get health insurance, but then when need arises they discover it doesn’t cover hospitalization, or it only pays $100/day toward hospital care, or has some other substantial limitation. In addition marketplace do not have annual or lifetime limits on what they will pay for an individual’s care. Another key “quality” factor is that the plans have been actuarially evaluated as providing appropriate coverage for an appropriate cost. In other words, they are not set up to make big profits for the company.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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URGENT – Mortgage Forbearance Deadlines this Week!

We mentioned Mortgage Forbearance earlier as a helpful tool for homeowners who are having trouble with their mortgage payments. Forbearance is when your mortgage servicer or lender allows you to pause or reduce your mortgage payments for a limited time while you build back your finances. The CARES Act (passed back in April of 2020) required that when a mortgage is backed by a Federal Agency, the borrower is automatically eligible for 3-6 months of forbearance if they are experiencing financial hardship resulting (directly OR indirectly) from COVID-19. Forbearance creates a helpful reprieve for struggling families.

The deadline to apply for forbearance under the CARES Act is September 30, 2021 IF your mortgage is backed by HUD/FHA, USDA, or the VA! That means NOW is the time for action. NOTE: if your loan is backed by Fannie Mae or Freddie Mac, there is not currently a deadline for requesting an initial forbearance.

Not Sure About Your Mortgage? Contact your mortgage company and ask them about your mortgage — asked if was backed by any of the agencies listed above. It that answer is “yes,” and if you are struggling with payments and bills, apply right away: ask your mortgage company to provide the needed application materials.

What does it mean to have your mortgage “backed” by a government agency? That simply means that when you bought your home, you qualified for special terms – often a lower down payment, reduced fees, or preferential interest rate thanks to a government program. I remember that when I bought my first house it was an FHA Loan; many first-time homebuyers qualify for special terms, and others do as well. If you are not sure, there is no harm in asking!

The Consumer Financial Protection Bureau provides more information about forbearance. Financial assistance for homeowners at imminent risk of foreclosure may be available as well; the Iowa Finance Authority provides more information, about help that is currently available, and notes that more assistance, authorized under the American Rescue Plan Act, will be available within the next several months.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Prioritizing Bills

When money is tight, we sometimes have to make VERY difficult choices. 

What do I mean by “difficult?” I’m NOT talking about “which sweater should I buy?”  That does not qualify as a difficult choice in the true sense of difficult choices. I am talking about “I have 8 bills to pay, and I can only pay 5 of them.”

When you need to consider which bills to pay, a key is to ask “what would be the consequences of not paying each bill?” With that in mind, there are three types of bills that generally need top priority. These are bills that are necessary to:

  1. Keep you safe and healthy (for example, picking up your prescription medicines)
  2. Keep you housed (for example, paying rent or mortgage)
  3. Keep your employment (for example, renewing your professional license, or keeping transportation to work)

These three priorities go beyond actual bills, too. For example, buying groceries is not a “bill,” but having healthy food is essential to keeping you and your family safe and healthy. Likewise, if driving is the only way to get to work, then your car needs gas. Applying those three priorities will help you make the difficult choices about what bills to pay and what money to spend.

Asking for help is important too. Sometimes direct help is available for your bills; for example, the Low Income Home Energy Assistance Program (LIHEAP) can help with heating/utility bills if you qualify. In other cases, getting help with something else can free up some money for your bills. For example, getting food from a food pantry would make money available to pay more of your bills.

Using these three priorities is a short-term solution. When you’re in a difficult situation, you need a short-term plan to get you through the week or the month. But when the problem continues over time, the short-term solution is no longer enough. Longer-term changes will be needed, such as increased income, or a permanent reduction in expenses.

If you face a situation where long-term changes are needed to resolve your financial challenges, it is often wise to seek help assessing your situation. ISU Extension and Outreach specialists can help you examine your options. We cannot tell you what to do – only you can make that decision – but we may be able to help you identify new options, or thoroughly assess the pros and cons of various actions. Find and contact your local educator here.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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College Students and Money: Discretionary spending adds up

This is the fourth in a series this week about financial issues faced by students in college and trade schools. Yesterday’s post discussed discretionary spending. Today we share an example that can help students as they consider how much they will spend on discretionary items.

Suppose Student A and Student B are financially identical, except Student A spends $450 a month on discretionary spending and Student B spends $150 a month. Student A spends $300/month more on discretionary expenses through four years of college (I’m including summers too, since most students continue having discretionary spending through the summer). When four years are over, suppose Student B has total student loan balance of $20,000. Since they were identical except for discretionary spending, that means Student A’s total student loan debt will be $34,400, or $14,400 more than Student B.

The current interest rate on federal student loans is 3.73% per year. Let’s suppose they repay their loans using the standard 10-year repayment plan, although there are other plans available with longer repayment terms and lower monthly payments. On the 10-year plan, Student B will pay $200/month. Student A, on the other hand, will pay $345/month. 

As fresh college graduates, will Student A be ready to deal with a monthly loan payment of $345, instead of a payment of $200? That extra $145 student loan payment is the consequence of their extra college spending; extra spending during college limits their options in the future. Understanding the consequences of their actions helps students make informed decisions they can live with in the long run.

What’s the “right” decision on discretionary spending? Only the student can decide. I have heard of college juniors and seniors who look back on their spending in their first one or two years of school and regret it. Of course there may be others who look back at how little they spent and wish they had let themselves have a little more fun.

When considering how much total educational debt you are willing to accumulate, consider two rules:

  • Borrow as little as you can. This is in bold, because I think of this as the “golden rule” about student debt. This rule applies in virtually every situation, and is above any other rules.
  • Avoid borrowing more (total) than your expected first year’s salary. This is a commonly accepted “rule of thumb.” Example: if you hope to start out as a civil engineer making $60,000, then $60,000 should be the MAXIMUM you are willing to borrow for your education.
    Notice: this doesn’t mean you should go ahead and spend extra because “you can afford” to borrow $60,000. The golden rule is above all other rules – no matter what, it is wise to borrow as little as you can.

Tomorrow – the last in our series “College Students and Money.” Do you think the subject of credit cards will come up?

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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College Students and Money: It’s only a pizza…

This is the third in a series this week about financial decisions during the student years. Yesterday’s post focused on student loans. Today we’ll take a look at one factor that affects how much students end up borrowing.

As mentioned yesterday, one of the best things you can do to minimize the pain of paying back your student loans is to borrow as little as possible. When planning for college expenses, many students logically focus on room and board, tuition, and books. It’s important to also plan for another group of expenses I’ll call “discretionary spending.” As the name indicates, these are expenses that the student can choose, but are not essential to their education. This category includes clothes and non-essential transportation, but probably the biggest components are food and fun — from spring break, to a fraternity dance, to ordering Chinese food, and more.

Note: food (whether eating out or ordering in) is often a big component of a typical student’s budget — even students who have a meal plan. Ordering pizza to share with roommates doesn’t seem like a big deal. Not surprisingly, though, expenses that on their own “aren’t a big deal” can become a big deal when they happen frequently. Paying for 1/3 of a pizza one time is only a few dollars; if pizza night is twice a week for the whole school year, that can really add up.

Many students separate their discretionary spending from their school spending – I’ve heard students explain that the only money they spend for fun is the money they earn at their job. They believe their fun spending is completely separate from their student loans. In most cases, however, the truth is that every dollar they spend increases the amount they borrow. If they spend $50 (of their wages) on weekend fun, that means that in the long run they end up borrowing $50 more than they would have otherwise. If they hadn’t spent that money, they could have borrowed $50 less. 

I am definitely not suggesting that students shouldn’t have fun. It is perfectly okay – even important – to spend some money on fun activities with friends – that’s a wonderful part of the college experience. I do suggest, however, that students who decide on a limit for their discretionary spending (and stick within that limit) will benefit in two ways: 

  • They will accumulate less total college debt; and 
  • They will learn valuable “adulting” skills: planning ahead, deciding on priorities, and recognizing trade-offs (e.g. if I spend this money today, then I won’t have it for homecoming next weekend). 

How much should students’ discretionary spending be? I can’t answer that. Parents can’t (and shouldn’t try to) answer that. At the beginning, even the student may not know what to plan for. I’d encourage students to keep track of their spending for the first several weeks, then look that over. Based on that information, they can make an informed decision about how much they will allow for discretionary spending. Deciding on a limit also helps us resist peer pressure. Many students spend more than they want to spend, simply because they are pulled into their friends’ or roommates’ plans. Those activities are fun, but if there are no limits, the financial toll is substantial.

Realistic projection of discretionary spending will give more realistic projections when you use the Your Financial Path to Graduation tool from the Consumer Financial Protection Bureau. Tomorrow, we’ll share an example of how discretionary spending plays out over time. For today, I leave you with these reflections that relate not only to college life but to all phases of life:

  • Having fun and having a healthy social life is a very important part of life. It is not, however, necessary to spend a lot of money to enjoy social activities.
  • Friends who push you to spend more than you feel comfortable with may not be the ideal friends.
  • You may find that if you stick to a limit on your discretionary spending, your friends will be grateful too!

This is the third in a series on planning for financial decision-making in college or trade school. Tomorrow – an example. Friday – a quick look at three other important topics.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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College Students and Money: What’s a Parent to Do?

This is the first of a series of posts on college students and money that will run this week – check back each day for more ideas and information.

In the next couple of weeks, thousands of American parents will be sending their young adult children off to college or other training. I remember well the combination of excitement and fear that involved.  In the midst of all that excitement, I encourage parents to have some conversations with their young adult child about money.

In those conversations, I suggest parents avoid “telling” their child what to do. Students are of age, and are testing their wings as independent adults; attempts to control them may backfire and cause them to assert their independence by going the opposite direction.  

Instead, it may be more productive to open a discussion with a question like, “What are your thoughts about how much money you’ll spend apart from tuition, books and school supplies?” That gives them a chance to share their thoughts first, before you give your opinion. In fact, it may be best if you never share your opinion. Instead, you can help them anticipate the situations they’ll face and be aware of consequences of extra spending.

Talking about money with your children early and often is an important way to prepare them for the financial decisions they will encounter as young adults. Being prepared for those practical challenges will make it easier for students to succeed academically and socially during their college years. Ideally, those financial conversations begin in grade school, but if that didn’t happen in your family, don’t fret. Now is as good a time as any. And remember – the conversation doesn’t stop when they arrive at school. You will have plenty of opportunities to discuss these issues throughout the weeks and months ahead.

As you check in with your student during their college years, I encourage you to be intentional about creating opportunities for your student to share financial questions, challenges, decisions, and successes. Note that the goal is to create opportunities for them to share, rather than to simply pry into their finances. A helpful article from the University of Minnesota Extension suggests some excellent strategies:

  • Ask “what” and “how” questions that don’t mention money at first, but lead to a discussion about budgeting, smart shopping, and planning ahead. For example, ask “What kind of meals do you eat at school?” or “How do you find time to study and still see your friends?”
  • Share a topical news story or Facebook post. For example, say “I saw a Facebook post about a college student who used Kickstarter to pay off student loans. How does that work?”
  • Teach each other. Have your child show you how to download and use a mobile banking app such as mint.com while you explain the content. Source: University of Minnesota

Watch this week for more practical posts on helping students succeed financially during college. Up next: Let’s be smart about student loans. Later this week: credit cards and more!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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