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The Best Way to Manage Household Money Is to Organize It

February 20, 1986|BONNIE McCULLOUGH | McCullough, based in Colorado, is the author of four books on home management.

Net worth is not necessarily determined by income. True value equals the goods, services and savings accumulated. This has to do with how carefully you keep track of financial papers, whether you spend impulsively or intentionally, how wisely you shop, and how well you take care of what you have.

If you could use more money, there are two choices: increase income or get more for the money. The way to manage money is to organize it.

You will spend money whether or not you have a budget. But if you have a plan, you are more likely to be satisfied with where the money goes. By setting goals, you can eliminate, or at least cut back on, regrets.

Several years ago, St. Martin's Press published a workbook that I prepared titled: "Bonnie's Household Budget Book" ($8). It is available this time of year at local bookstores.

A Spending Plan

Make a plan before spending money. The key is to write out a plan. If you can't work out a plan on paper, your budget might not work. You can not hide from the facts--they will eventually catch up to you. The longer you wait, the harder it is to get control. If you don't have enough income to cover bills, call the Consumer Credit Counseling Service in your area for personal guidance to set up a plan for getting out of debt.

If you share expenses with someone, you should both be involved in budget decisions and then stick to them.

A major strategy for helping to manage money is to distinguish between what is available to be spent and what is already committed. For example, suppose monthly take-home pay is $1,700, which sounds like a lot, but if you subtract all the fixed expenses (house payment or rent, utilities, insurance, debts, child support), you might have only $650 left for all other expenses such as food, clothing, gas, entertainment. This figure shows a better picture of what can be spent.

Then, if you are thinking of buying something, the question is not whether you can afford it from the $1,700, but whether you can buy it out of the $650, in which case it may take several months to save for that purchase because you still have to buy necessities.

A New View of Income

You will look at discretionary income in a new way--you may be more careful about buying a new sofa with $75-per-month payment. And if you can cut down on a bill, or pay off other debts, you can increase available income.

Consider savings as a fixed expense and allow for two kinds. First, you need to build a cushion to take care of unplanned emergencies. Many financial advisers recommend 20% of take-home pay be designated to either catch up on past bills or to build an emergency fund. The second category of savings is to set aside money (some financial planners suggest 10% of take-home pay) for investment or long-term goals to buy a house or for retirement.

At first, draw a sketch of the overall financial picture. It will be helpful for several months to keep a ledger-account of spending. The average family might not know where 25% of its money goes. Not that those expenditures aren't essential, but how can you know for sure unless you can see where the money was spent?

The answer to more satisfaction is to spend intentionally, not impulsively. Keep a want list. Define financial wants and give them priorities. As a desire to have something comes upon you, write it down. Then when you have some discretionary money, you can choose from the list what you want most, not just what you happen to want today or what you see.

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