H1.7H9Z/2 Home and Garden Bulletin No. 98 U.S. DEPARTMENT OF AGRICULTURE CONTENTS Page Why a plan? ..., 3 What spending plan? 4 Steps in making your plan 6 Set your goals 6 Estimate your income 6 Estimate your expenses 7 Set up a trial spending plan 8 Make your plan work 12 Keep records 12 Evaluate your plan 13 Prepared by Consumer and Food Economics Research Division Agricultural Research Service Issued August 1964 Washington, D.C. Slightly revised October 1967 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price 10 cents a guide to budgeting for the young couple If you are a young married couple who want to make a good start in managing your finances, this pub- lication can be of help to you. Here you'll find the basic steps setting up and using a simple work- able budget — one evolved from your own experience, tailored to your in- come and situation, and geared to your individual goals. Budgeting doesn't mean that you will be pinching pennies and neatly recording how you spent every one, but it does mean that you will — • Make money management a joint venture from the start. • Face money matters frankly and get problems down on paper. • Consider each other's wishes. • Agree on a realistic spending plan. • Stick to budgeting until your plan works. • Adjust the plan as your circum- stances change. WHY A PLAN? Newlyweds are often more roman- tic than factual about what it actu- ally costs to run a household. Your views on what you can afford may be a little unrealistic at first. Per- haps you have been living on an income of your own and did not have to share, or you have been in school and dependent on your parents. Now you find yourselves in an entirely new situation — with new responsibilities. You may be living in a new community, too. You'd like to establish the right pattern of money management in your marriage, but you hardly know where to begin. You know it's smart to live within your income and, with time, get ahead a little. If you look about you, you'll notice some young couples seem to have the knack of making ends meet, while others, in the same circum- stances, are already carrying heavy debt loads and are often pinched for money. The difference is that some couples are better managers of their resources — they have learned the value of planning. There's no doubt about it — making and carrying out a spending plan does help. To make a plan, you have to sit down together, talk realis- tically about money, face facts, and work out any differences you may have about how your income is to be used. If one of you wants to proceed with caution — save ahead for the things you want to buy — and the other prefers to "live it up" and pay later, you'll need to discuss the pros and cons of both methods and decide on a course of action both of you can accept. Some compromise may be necessary on both sides. This is all to the good. It is when couples fail to communicate with each other about money problems and do not work together as a team in solving them that financial tiffs arise. If both of you take part in making a spending plan, you will feel better about it and work harder to make it a success. You will be less tempted to buy unnecessary and trivial items because you know what you want your dollars to do for you. WHAT SPENDING PLAN? No readymade spending plan fits every couple — or even one couple necessarily. A set percentage of income cannot be assigned rigidly for each budget category. The old iron-clad budgets used these meth- ods, and failed. Why? Because they did not allow for individual dif- ferences or provide any flexibility within the structure. Each couple has different stand- ards, values, needs, wants, and re- sources. No two spending plans can be alike because no two couples or situations are alike. What you need is a practical spending plan that fits you — both of you. No "his" and "her" ar- rangement here, please, even if there is a double income. This is sup- posed to be a money partnership. Since this is the first "married" budget, it will help to have some idea of the relationship of the various items of expenditure to each other — that is, which are likely to take a large part of the total, and which a smaller part. Here are some estimates based on studies of spending by two-person families. These figures show how couples at two income levels (one under, the other over, $5,000) di- vided their income. Lower Higher income income Percent Percent Total money income 100 100 Total for current living 83 80 Food and beverages 19 18 Shelter (rent or interest on mortgage, upkeep, insur- ance, and taxes) 13 12 Fuel and utilities 4 4 Household operation 5 5 Furnishings and equipment 5 4 Clothing 8 7 Transportation 15 16 Medical care 5 5 Recreation and education 5 5 Personal and miscellaneous 4 4 Gifts and contributions 3 3 Personal insurance 4 4 Income taxes 10 12 Savings (net changes in assets and liabilities) 1 These estimates show that a bud- get based on a single set of percent- ages would not fit both income groups. Moreover, it would not fit all young couples in either income group because individual couples have different needs and desires. For example, if you are a couple who enjoy entertaining at home and want space, serving equipment for a large number of friends, and a gener- ous budget for food, then your par- ticular plan might allow a consider- able portion of your income for these budget groups and less for other items. If you are "car conscious," need a late-model car in your line of work, or like to travel, you may choose to provide a larger transportation al- lowance and pay less for rent. Per- haps you are entering marriage well supplied with clothes. If this is the case, your first-year budget might allocate a small sum for clothes in order to have more for household furnishings. STEPS IN MAKING YOUR PLAN Set Your Goals Before you actually make a spend- ing plan, it is a good idea for the two of you to set some goals — some for right now (this month), some for later (6 months or a year), and some for the foreseeable future — perhaps 5 or 10 years from now. Try to be down-to-earth and co- operative about your goals. Sure you both adore original paintings, but now is hardly the time to hang one on every wall, is it? If you find that your goals are moving in oppo- site directions — one of you dreaming about a sleek convertible and the other set on paying off a school debt — better bring these aspirations out in the open. The more specific you are about your immediate and long-time goals, the better. One goal for the first year or any year is, of course, to live comfortably. Other first-year goals might be: Meet the costs for a final year in college . . . start sav- ing for a better car . . . buy a chest of drawers. A 5-year goal might be to accumulate a downpayment on a house of your own or to begin a family. Ready? Now list your goals in the spaces below. Goals for this month: Goals for this year: Goals for future years: Estimate Your Income The next step in making a spend- ing plan is to add up how much money will be coming in during the period of your plan. The planning period may be a month, a year, or any length of time you choose. A year is often the period used, but if this is your first plan, you may want to set up a trial plan for a shorter period to see how it works out. Write down any money you expect to receive. Include wages or sal- ary from your regular job, net money earned from a farm or a busi- ness you operate, interest from a savings account or dividends from stock you may have accumulated before you married, a money gift or loan you expect to get from the family, and any extra income you plan to earn from a second job or from overtime on your present job. If your income is irregular, as it may be if you are a farmer, have your own business, or sell on com- mission, it may be wise to estimate the largest and the smallest amounts of income likely to be available and to use the lower amount for your spending plan. If income is very irregular, you may want to make an estimate for each month or week for the budget period. To figure out what your income will be, use this form: Estimated Money Income. (period) Item Amount Wage or salary of — Husband f Wife Net profit from business, farm, or profession Interest, dividends Other Total money income $ Estimate Your Expenses Now you are ready to estimate your expenses. One way to get an idea of what it costs to live is to call upon the experience of some of your friends who have been married for a year or two, but who are about your age and are in approximately the same income bracket. Even if they give you only a rough idea of costs it will be a start. Dad and Mother might have some pretty sound ideas, too. But the best way to find out what you will need to allow for each of the budget categories is to keep a record of what the two of you actually spend for a month or two. Each can carry a little pocket notebook in which to jot down expenditures dur- ing a week or pay period. Then total the amounts at a budgeting session. Or you may prefer to keep an ac- count book in a convenient place at home and both of you make entries in it. You can use the form on page 15 to help you keep a record of your spending. Keep the record faithfully for a month or two to find out what you are now spending for the various budget groups, such as food, housing, utilities, household operation, cloth- ing, transportation, entertainment, and personal items. Then you will have a fairly accurate guideline for estimating your expenses in your plan for future spending. Set Up a Trial Spending Plan Now you are ready to work out your first spending plan, based on your income, expenses, and goals. A sample of the form you might use is shown on page 9. Enter fixed expenses Every family has some expenses that are more or less fixed — expenses that have to be paid in specific amounts at specific times. It is a good idea to enter these fixed ex- penses in your plan for future spend- ing first, so you can see how much they are going to amount to before you begin to allocate the rest of your income. Start your plan by putting down the fixed expenses you expect to have every month. These will include rent or mortgage payment on your home, telephone and other utility bills, and payments on installment debts, if you have them. Next enter the expenses that will come up only once or twice a year, such as real estate, personal prop- erty, and income taxes; car license fees and car insurance premiums; life insurance premiums and vaca- tions. It is wise to put aside a def- inite amount each month toward these large, irregular expenses to spread the cost and have money to meet them when due. At this point you may want to de- cide what you can set aside as sav- ings and enter this as a fixed obliga- tion, too. You would like to get into the habit of saving as soon as possible. Sav- ing together can be almost as much fun as spending together, once you accept the idea that saving money is not punishment, but a systematic, 8 Our Plan for Spending 19. Item Jan. Total money income Major fixed expenses: Taxes Rent or mortgage payment insurance Debt payments Feb. Savings for; Emergency fund Flexible expenses: Food and beverages Household operation and maintenance Household furnishings and equipment Clothing Personal Transportation Medical care Recreation and education Gifts and contributions Total Dec. Total ■ planned way of reaching goals and ambitions. You do without little things now in anticipation of buying what will give you greater satis- faction later. You will find it easier to save for a purpose or toward a goal. A goal for saving might be to ac- cumulate enough to buy furniture. Decide about how large a sum you will need for this, and start saving each month toward it. If you possibly can do so, start to build up an emergency fund. There are bound to be extras that come up at the most unexpected times — like the car battery that has to be re- placed the last day of the month, or the unannounced guests who arrive when the grocery budget is at low ebb. Perhaps you will feel that you must have furniture, a car, or some other costly item before you can possibly save enough to pay for it. You may prefer to buy it on the in- stallment plan and pay for it as you use it. Enter these monthly pay- ments in your plan as fixed expenses. Enter flexible expenses After you have entered your fixed expenses and your savings, you are ready to consider your flexible ex- penses. Flexible expenses are those that fluctuate from week to week or month to month. Estimate how much you plan to spend for food and beverages, cloth- ing, transportation, and other budget groups for the period you have de- cided to budget for. To estimate these expenses, go back over the records you kept (if you kept a rec- ord for a month or two) and see what you spent for each of the budget groups and decide if you want to con- tinue this pattern. You may decide you need to spend more on some, and less on others. While these records will be a big help in estimating expenses for the budget period, they won't be a com- plete guide. You will probably have some expenses coming up that didn't occur while you were keeping the record. A record kept in July and August, for example, might not include such big expenses as winter coats and suits or fuel for winter heating. At this point you try to fit in the things you have listed in your im- mediate goals. Remember to include a personal allowance for each of you. A little not -to -be -accounted -for spending gives a sense of freedom. Compare income, expenses Now you are ready for the balanc- ing act — to compare your total expected income with the total of your planned expenses for the period you have planned for. If your income covers your ex- penses, and you are satisfied with the results — fine. If your expenses add up to more than your income, you'll need to look at all parts of the plan. Where can you cut down? Where are you overspending? You may have to decide what things are most important to you, which ones can wait. Every young couple needs ade- quate food, safe and decent housing, and clothes that give a sense of well-being. But you can be well fed 10 on hamburger or on porterhouse steak. If you prefer to eat less expensive but equally nutritious food in order to afford better clothes or to live in a more desirable neigh- borhood—that is your choice to make. The solution to money problems is not necessarily more money. Some- times it is an understanding of how to get more for the money you have, plus the patience, energy, and self- discipline to do it. It is quite possible that you can do some trimming on your flexible expenses. Once you get in the spirit and put your mind to it — this learn- ing how to cut down can be quite a game — and may give you more true satisfaction in the long run than spending in a haphazard, happy-go- lucky fashion and regretting it later. Look over your flexible expenses. To reduce them you might — • Eliminate some items alto- gether, for the time being at least. • Spend less for certain items (cut down on cigarettes or pay less for a spring coat). • Make use of your own skills instead of paying for services (make the cafe curtains you want instead of buying them, wash your car, etc.). • Take your lunch from home instead of buying it. • Take advantage of free com- munity services for education and recreation (concerts, parks, libraries, lectures, recreational centers, art exhibits). Sometimes the need (or was it really a desire?) for something big diminishes with time and some less expensive and more obtainable goal can be substituted. If you have pared your flexible expenses as far as you think you can, scan your fixed expenses. 11 Maybe you can make some sizable that may help you get the most for reductions here. Rent is a big item your money: in a budget. Perhaps you should • Take advantage of weekend consider moving to a lower-priced food specials. apartment or making different liv- • Inform yourself on a product ing arrangements. Perhaps it would before you shop for it. be better to turn in a too-expensive • Get over the idea that every- car and get a cheaper one to use thing you buy has to be brand new. until you get caught up. Secondhand furniture, for example, If, after doing all the cutting you may be a good investment for young think you can or are willing to do, couples, especially if you are not your plan still calls for more than permanently settled and are likely you make or can reasonably expect to move about considerably in the to pay for in the future, you may years ahead. want to consider ways of increasing • Be alert to quality. Compare your income. prices. If both of you are working, you • Patronize seasonal sales at might start looking about for better- reliable shops. So-called "white paying jobs. In extreme cases, a sales" offer towels, sheets, and part-time second job may be the other household textiles at substan- answer. If either of you is not tial savings. working now, you might consider • Be knowledgeable in the use becoming a dual-income family, or of credit. Know what it costs. The you might be able to make some table on page 13 shows interest rates hobby or talent pay off. for commonly used sources of con- Another possibility is to draw on sumer credit, reserves you may have. These are decisions only the two of you can make. MAKE YOUR PLAN WORK Keep Records You will find it helpful to keep track of expenses, at least in the beginning, to find out how your plan works. A spindle for receipts and other notations of amounts spent, After your plan is completed, kept in a handy place, and a record- put it to work. This is when the ing and adding-up session at the end fun really starts! How firm will of the week or month may be all the you be under the salesman's spell? recordkeeping you need to do. Can you resist impulse spending? Or you might like to use a form If you are really interested in similar to the partial one shown on sound money management and want page 15 to record your expenses, to form good buying habits, you This form may be easily ruled off will find a sufficient supply of con- on a sheet of paper or in a looseleaf sumer information available for notebook. Allow a separate column your study. for each category of expense you Here are some general guidelines want to keep track of. 12 Installment Credit Rates Financing agency or type of loan Rates paid by consumer credit users (equivalent percent per year on unpaid balance) Common rate Range of legal maximum rates Percent A. Cash lenders: Credit unions : Commercial banks — personal loans Consumer finance companies — under small loan laws... Illegal lenders B. Retail installment financing in 24 States with rate legisla- tion— 12-month contract: New cars Used cars under 2 years old Used cars over 2 years old C. Retail installment financing in States without rate legisla- tion— 12-month contract: New cars Used cars Percent 12 12 12 12 to 42 30 24 to 48 •42 to 1,200 12 12 to 24 ( 2 ) 18 to 31 ( 2 ) 18 to 43 12 1 12 to 120 ( 2 ) 1 19 to 275 1 No legal maximum here. Figures shown give the range of actual rates reportedly being charged. 2 Not available. Source: Mors, W. P.. Consumer Credit Facts For You. Western Reserve University, Bureau of Business Research. Edition 2. Cleveland, Ohio. 1959. You will find it helpful if the column headings conform in general with the headings in your plan, so you can check your expenses against your plan. You can subdivide the groups, though. For example, "Food and Beverages" might be divided into "Food at Home" and "Food Away From Home" and expenses noted separately. Or "Medical Care" might be divided into medical and dental care with separate col- umns made for each. Or, if you are still in college, you may wish to keep track of your "Education" expenses separate from "Recrea- tion." At the end of the month or period under consideration, add up your expenses under each heading so you can compare them with your plan. Keep records simple. The sim- pler the records, the more likely you are to keep them. Recordkeep- ing need not be a continuous process. Once you've set your spending pat- tern, records — at least detailed ones — may not be necessary. Evaluate Your Plan At the end of the budget period, compare what you actually spent with what you planned to spend. If the amounts are the same, or reasonably close, were you satisfied with the results? If you spent differently than you planned, why? Was your plan unrealistic or too 13 rigid? Did you buy something you didn't plan for? Did you have an unexpected change in income? Did the plan fail because the two of you didn't see eye to eye on some phases of it? Did one or both of you fall down in keeping records? If your first plan didn't work in all respects, you shouldn't be discouraged. A budget is not a "one shot deal" — something you make once and never touch again. Instead you keep re- working a budget until it works for you and the results satisfy you. This means making, appraising, re- vising and remaking until eventually you may get to the point where it actually isn't necessary to write down all the facts and figures to have a budget. The whole process becomes sort of second nature to you. All you need to do is carry a plan in your head, if you prefer to budget that way. If you were perfectly satisfied with your first try at budgeting, you will still need to adjust your plan from time to time. As circum- stances change — a move to a dif- ferent community, the arrival of a baby, or a change in jobs with a change in income — you will discover you need to set new goals and to reorganize your plan around your new goals. 14 Record of Our Expenses Date Item (or service) bought Total Classified as — Food and beverages Sheltt Household operation Gifts and contributions 15 UNIVERSITY OF FLORIDA 3 1262 08856 1294 MORE INFORMATION Listed below are publications prepared by the U.S. Department of Agri- culture that may be helpful to you in getting the most for your money. These publications are available from the U.S. Department of Agriculture, Wash- ington, D.C. 20250. Order No. Washing Machines . . . Selection and Use G 32 Home Freezers . . . Their Selection and Use G 48 Home Care of Purchased Frozen Foods G 69 Food for the Young Couple G 85 Conserving the Nutritive Values in Foods G 90 Eggs in Family Meals: A Guide for Consumers G 103 Vegetables in Family Meals: A Guide for Consumers G 105 What Young Farm Families Should Know About Credit F 2135 Know Your Butter Grades MB 12 Tips on Selecting Fruits and Vegetables MB 13 U.S. Grades for Beef. . MB 15 Cheese Buying Guide for Consumers MB 17 This is a (^OiM^UM^^e^O^fi/of USDA U.S. GOVERNMENT PRINTING OFFICE: 1967 O— 275-560