You Decide: Managing Your Money

Planned and Unplanned Spending              

Bulletin #4501            

Managing money effectively requires four things. 

You need to

• have a plan or goal;
• get the right tools;
• have a way to make decisions; and
• know the pitfalls.

The way you manage your money is part of your whole self. Decisions about your money and the things you own are not made apart from the rest of your life. Think about how important money is in our culture. Almost everyone is affected by advertising, public health care policies and the risks of consumer fraud. We are surrounded by forces we can’t control. However, we can control how we react to these forces.

This fact sheet can help you find a way to manage money that gets you where you want or need to be. Some of the ideas or tools may not be right for you. You may need to search further to find the right tools. For example, if you are carrying thousands of dollars in credit card debt and can only make minimum payments, you may want the help of a debt counseling/consolidation service to restructure your payments. However, the information that follows can help you make the decisions to get started. 

For most of us, issues around money management seem to fall into two main categories:

• Not enough money
• Unplanned or uncontrolled spending

If these statements seem a bit blunt, they are meant to be. If you do not have enough money to do what you need or want to do, then you need to decide what to do about it. You can figure out how to get more money. You can reduce your wants and needs, until what comes in is enough. If after all the figuring and planning, you still don’t have enough income, you will have to make some hard decisions about your lifestyle. Should you find ways to raise your income, or can you rethink your lifestyle some more? Remember that using a credit card to make up the difference is a trap. Using a credit card is the same as taking out a loan, which you must pay back, with interest. 

One decision you need to make right away is that you will look at all the information. You will look at all the money and all the things that play into your money style. If you leave out even a small piece of this picture, then you are choosing to work with less than the whole story. Let’s say that you don’t account for the fact that you buy something to eat or drink on the way to or from work every day. Then you are choosing to have less money available for other needs, or wants. Everything you spend money on involves a choice. 

Let’s look at the two ways money is spent: by planned spending, and by unplanned spending.

Unplanned Spending—Taking Control

Many of us operate with two spending patterns or styles. One is our planned weekly or monthly spending on necessities. These items include food, clothing, housing, transportation and health costs, to name some of the big ones. We usually have a clear idea of how much we can afford to spend on these basics. We stay fairly close to our budget to make sure we can cover these costs. Many of us also have unplanned, out-of-pocket spending. These are day-to-day items that are part of our daily habits. They may be impulsive. 

Always “coming up short” at the end of the week or month may be the result of out-of-pocket spending.

Everything you do requires a decision—the food you eat, the clothes you wear, the vehicle you drive. Sometimes such decisions are well thought out and discussed with others affected, such as family. Other times, the decision is spur-of-the-moment, unplanned, even reckless. You might say “the heck with it, I’ll do it anyway. I’ll worry about it later.” 

Too much unplanned spending can get you in trouble in a hurry. Part of your financial planning has to deal with the part of you that likes impulse buying. Or the part of you that wants to eat out or buy new clothes. The chances for impulse buying are endless. 

The question is, who is in control of your spending? When you say you cannot control yourself, what you are really saying is that you choose not to control yourself. Like everything else in life, you have a choice. If you choose to be in deep debt, with not enough money to pay off that debt in a timely way, then this fact sheet probably won’t help much.

What each of us does with our money, whether planned or unplanned, is up to us to decide. This fact sheet can help you track your unplanned spending, and see how it affects your overall budget. Use the unplanned spending form. Try to write down all the unplanned spending for the past week. Usually, this is easier when you work your way back day by day. If you cannot recall more than two or three days back, try keeping a daily record for the next four weeks. List all unplanned spending for each day. 

Here are some examples of unplanned spending:

• Coffee and doughnut on the way to work
• Newspapers and magazines
• “Treats” for the kids
• Spontaneous dinner out or night at the movies
• Unexpected car or appliance repairs
• Yard sale buys
• Donations and gifts
• Impulse shopping
• Health emergency or illness

At the end of each week, add this daily spending to see how much unplanned spending you are doing. This can be very helpful information. But it is only as accurate as your record. Try to find the patterns or habits suggested by your unplanned spending. You may discover that you spend impulsively in stressful moments. Or you may be very comfortable with the amount you spend this way. The purpose of this spending record is to get the information you need to make good decisions about how you spend your money.

The record of unplanned spending will be more accurate if four weeks are recorded. Some weeks you may spend way above or way below the average. Four weeks should give you a better sense of your overall unplanned spending. Repeat this process every so often, three or four times a year at least.

Planning to Spend—Budgeting Your Money

Do you live from paycheck to paycheck? Do you use credit cards to pay for things you don’t have money for? Do you always make minimum payments on your credit card bills? If so, ask yourself a question: is this the path you want to follow? 

Managing your money involves making choices and decisions. To make choices, you must give yourself enough correct information to make fully informed decisions. By doing this you can budget, or plan your spending. Simply put, budgeting involves listing what you expect to have to pay for every week, every two weeks, or every month. Some payments are only monthly—usually car payments, mortgage or rent, and utility bills. The few that are due less often—like car insurance and taxes—should be included in your monthly planning. There are lots of planned spending or budgeting forms available. Some include a line for every possible expense; others are briefer and combine some items. Decide what works best for you.

Most money management experts advise a three-step budgeting process:

• First, figure out your total income. This includes wages, salary, child support benefits, social security, unemployment benefits and workers’ compensation benefits. In short, any income you have.
• Next, add up your expenses. Most of us have some expenses that stay the same—housing, some taxes, loan and car payments—and some expenses that change—health, food, clothing, utilities, child care, transportation. 
• There are two very important expenses you should try to budget for: emergencies and savings. These two are hard to think about if you can barely make ends meet. But if you don’t, a single emergency can affect your finances for years.
• Now that you know your income and your expenses, you must make choices. If you don’t have enough to pay your expenses, you have to either add to your income or cut your expenses. The choice is yours to make. Each choice will affect your life in a different way. To cut your expenses, you will need to change your lifestyle. You will eat out less often, keep your car longer, buy food in bulk and so on. Cars are a major expense: some people reduce their transportation expenses by ride-sharing to work or the grocery store. Other people save money by trading chores and services with their neighbors. If there are others affected by these decisions, then you should talk with them and make agreements.
  
  If you choose to increase your income, you may have more money, but less free time for family members or recreation. Also, you will need to be careful that when you increase your income, you don’t increase your expenses. “I’m making more, so I can spend more” goes the thinking.

By planning to spend—and sticking to your plan—you can get back on track and stay there.

William J. Weber, Extension resource management specialist

For more information, contact your county Extension office.

Published and distributed in furtherance of Acts of Congress of May 8 and June 30, 1914, by the University of Maine Cooperative Extension, the Land Grant University of the state of Maine and the U.S. Department of Agriculture cooperating. Cooperative Extension and other agencies of the U.S.D.A. provide equal opportunities in programs and employment.

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