Managing between Jobs: Setting Spending Priorities
Managing between Jobs

Faced with reduced income, you’ll need to cut back on spending and develop a spending plan to help you pay your bills. If your income will be reduced for more than a month, adjust your spending habits to maintain control of your finances.

Many people try to hide financial problems from themselves or family members. Not facing your problems can be destructive because the worry and stress caused by financial uncertainty and lack of cash may be worse than the financial problem itself. It’s important to look realistically at your situation and actively seek solutions to your problems, despite the discomfort.

Because spending decisions affect the whole family, talk with your family about your situation. Let them know you need to change your spending. Involve them in deciding spending priorities. If family members understand the tough choices that must be made and have a voice in making decisions, they will be more willing to accept the decisions.

As your family talks about what is most important. Be sure to listen to what others say. Supporting each other can help you pull together as a family and get through these hard times.

How Other Families Handle Reduced Income -
Studies show families respond to reduced income by cutting back on their spending for nonessentials such as luxuries, vacations, eating out, and home furnishings. As the period of unemployment or reduced income continues, many families also report reduced spending for basic needs including food, shelter, transportation, and medical care.

Families also say they revise their budgets. Most make a new spending plan that includes a revised plan for getting the bills paid.

Fewer families report increasing their income or using more credit as ways to manage during unemployment. Borrowing or using credit to pay bills often brings only temporary relief. For those families who increase their use of credit, the more they borrowed, the more unhappy they were with their financial situation.

The studies also found that families who quickly made changes in their spending habits were the most satisfied with how they were managing during unemployment. Families who didn’t make changes felt more out of control and more dissatisfied.

Making A Spending Plan -
A spending plan is always an effective tool to help you get the most for your money. It is even more important when you have a sudden change in your income. A spending plan helps you:

• make decisions about how to spend your money;



• provide for needs before wants;



• match your spending to your current income; and



• prevent family arguments over money.

Worksheet 1 - "Monthly Spending Plan" - can help you set up a spending plan for your current income. By comparing your income and planned expenses before and after your income was reduced, you can see what changes are needed.

Step 1: Your Income - Add up your current total family income from all sources. Include Unemployment Compensation as well as income from other family members if it is used for family expenses. Use the take-home amount, or what you actually have to spend after deductions.

• Do you receive income from any of these sources?
  
  
• Earnings from employed family members
  
  
• Unemployment Compensation
  
  
• Withdrawal from savings
  
  
• Tips or commissions
  
  
• Interest or dividends
  
  
• Social Security
  
  
• Child support or alimony
  
  
• Public assistance
  
  
• Veterans benefits

List your income now and before it was reduced on the spending plan worksheet.

Step 2: Your Monthly Expenses - If you had a spending plan before your income was reduced, you probably know how much you were spending for monthly expenses. If not, use old records, canceled checks, bills, and receipts to figure out how much you spent on the following categories.

• Housing - mortgage or rent payments, property taxes
  
  
• Utilities - electricity, gas, oil, phone, water, cable TV
  
  
• Food - groceries, eating out, school lunches
  
  
• Transportation - gas, car repairs and maintenance, parking, bus, taxi fares
  
  
• Medical Care - doctor, dentist, clinic, hospital, medicine, glasses
  
  
• Credit Payments - car payments, installment loans, credit cards, charge accounts
  
  
• Insurance - health, life, property, car, disability
  
  
• Household Operations and Maintenance - repairs, cleaning supplies, paper supplies, towels, equipment
  
  
• Clothing and Personal Care - new clothing purchases, laundry, dry cleaning, hair care, cosmetics, toiletries
  
  
• Education and Recreation - books, magazines, newspapers, lessons, tuition, hobbies, club dues, sports, pet expenses, entertainment, vacation, alcohol, tobacco
  
• 
  Miscellaneous - child care, gifts, contributions, personal allowances, child support

Remember, not all your expenses are monthly. Property taxes, insurance premiums, and holiday gifts come once or twice a year. It’s easy to forget about them and then not have the money to pay for them. Worksheet 2 - "Occasional and Seasonal Expenses" - can help you identify and anticipate these expenses. You will need to set aside some money in your monthly spending plan to meet these occasional costs.

As you think about what you were spending and try to plan how much you can now spend, ask yourself these questions:

• Which expenses are essential to your family’s well-being?



• Which expenses have the highest priority?



• Which areas can you reduce to keep your spending within your income?



• How much can you afford to spend in each category?

Adjust the amounts you spend in each expense category and enter the new amount in the column labeled "Adjusted Amount" on the spending plan worksheet.

Step 3: Balance Income And Expenses - Add up your adjusted expenses and compare the total to your current income. When your income is reduced, it may be difficult to stay within your income.

What can you do if your expenses are greater than your income?

• Cut back on spending
  
  
• Increase your income

What are the possibilities for part-time or temporary work to help supplement your income during this period of unemployment? Use your non-dollar resources, too.

• Look at your other assets
  

What savings, investments or property do you have that could be used or converted to cash to meet expenses. Keep in mind that borrowing and using savings may be only temporary solutions.

• Reduce your fixed expenses

If too much of your income is going to fixed expenses such as housing or debt payments, there may not be enough money left over to cover your other living expenses. You may need to refinance your loans, move to lower-cost housing, or surrender the property to your creditor to get out from under some of your debt.

Making Your Spending Plan Work -
Once you have a spending plan that sets spending amounts for essential family needs and balances your spending with your income, you’ll have to stick to it. Writing it down is not enough. You must use the plan to guide your spending.

Managing On A Seasonal Or Irregular Income -
If you are self-employed, seasonally employed, or receive income from tips or commission, your family income may change from month to month. In that case, look ahead and carefully estimate your income. It may be helpful to estimate your income for a whole year so you can see when and how much it changes.

Even though your income may change from one month to the next, many of your living expenses are the same each month. This mismatch of income and expenses creates uncertainty that can cause feelings of insecurity and increase family tension.

Reduce this uncertainty by establishing a monthly family living allowance. Use expenses you identified as part of your spending plan to determine your monthly living allowance, or what it costs your family to live each month.

When you receive income, deposit a major portion of it in a special savings or money market account where it will earn interest but still be readily available. Then, each month pay yourself by withdrawing the amount of your family living allowance and putting it into your checking account to pay your bills. Avoid the temptation to spend more money in the months when your income is greater.

As a family on a seasonal or irregular income, you may want to schedule some major expenses such as insurance premiums, clothing purchases, and non-emergency medical and dental care to coincide with times of more income.

Summary -
Living on a reduced income may be temporary or prolonged. Getting the most from your income during this time requires careful planning and wise spending decisions.

A spending plan based on what you and your family consider to be most important, can help you balance your spending with your available income and resources. Keeping track of your spending will help ensure that you have the money for the things your family needs most.

Worksheet 1: Monthly Spending Plan

*Because most bills are monthly, it’s easiest to look at income and expenses on a monthly basis.

Multiply weekly income by 4.33 and bi-weekly income by 2.17 to convert them to monthly amounts.

Worksheet 2: Occasional And Seasonal Expenses

Some big expenses like property taxes and insurance premiums come up only once or twice a year. Others are seasonal, such as school clothes in the fall and holiday gifts in December. Use this chart to help you estimate these expenses and include them in your spending plan.

Want to read more about managing between jobs? Or would you rather review one of the other packets offered at convention?

Also remember that Working Solutions has a virtual library full of information on these and other topics...go to their site, and look at Today's Library™ for the topics that best suit your situation.

Working Solutions Service is available to you through the Union-led Benefits Trust.