Making Ends Meet

There is no wrong or right way to make ends meet. Each situation will differ based on your family values, goals and the amount of resources available. Being successful is more likely to occur if you have correct information about income and expenses, you develop a system to organize and track spending, and you are willing to make adjustments as needed.

Step 1. Set your financial goals. Most households have short-term (less than 1 year), medium-term (1-5 years) and long term goals (more than 5 years). Click here for more on setting goals. Setting goals means knowing your priorities because not everything is of equal importance. You also need a realistic and accurate picture of the resources you have available. The challenge is knowing what you are committed to do.

Step 2. Determine your income sources. Most people have a general sense of how much money comes into the household each month. Writing down all the actual amounts will give you a clearer picture of how much you have to spend and save. List your monthly income, which includes after tax salary, social security and supplemental income, bonus/overtime, rental income, public assistance and food stamps, alimony/child support, investment income, interest from checking and savings accounts or other sources of income. Use the Making Ends Worksheet. You can see how your family's budget compares to other families in your area.

Step 3. Estimate spending. It is important to know how much is being spent in different categories each month. Some payments like rent and insurance premiums stay the same every month. These are called fixed-expenses. Expenses that change from month to month are called variable-expenses. This includes categories like food, utilities, or transportation. Don't forget to plan for occasional expenses, like car/property tax, or school fees. Calculate how much needs to be set aside each month to be able to make the payment when it is due. For example, an annual car tax of $120 means setting aside $10 each month ($120 ÷ 12 = $10 per month)

Step 4. Develop a spending plan. A plan is a management tool to help you achieve your financial goals. Use a calculator to shape a spending plan to balance income and expenses. (Income=Expenses+Savings). If income is less than expenses (including savings), what are some realistic changes you can make? Can you decrease some of your monthly variable expenses? Food and entertainment are categories where people usually have the most flexibility to reduce spending. Although more difficult, look at fixed expenses that could be changed over time. Sometimes, your goals may need to be changed or eliminated to balance your budget! Try this calculator to help create your budget.

Step 5. Tracking Spending. Now it's time to put the plan into action. That means selecting a system to keep track of spending that will work best for you. Keeping receipts or keeping a log of spending in a notebook are simple methods to track spending. Everyone in the household needs to cooperate to keep track of spending by the categories established. Usually one person will regularly (weekly or on payday) compile everyone's expenditures.

Step 6. Evaluate progress and make adjustments. Having the plan and tracking spending is not enough. You need to check to see if you are making progress towards your goals. A monthly check-up is commonly used. Are you keeping to the spending amounts planned? If the answer is no, find out why not? Are one or two categories disrupting the plan? What adjustments are needed? Remember, the plan is to help you make ends meet and achieve your financial goals.