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New Mexico State University

New Mexico State University

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Setting Up a Spending Plan

LAS CRUCES -- Family spending plans provide direction for household financial decisions, said a New Mexico State University consumer education specialist. They help determine the family budget and aid in planning for a sound financial future.

To develop a spending plan, families should first complete a net worth statement, said Susan Wright with NMSU's Cooperative Extension Service. A net worth statement is a listing of all assets and liabilities.

"After comparing assets with liabilities, you will have a better picture of your financial situation," she said. "Check your statement against your financial goals. Do you need to revise or set new financial goals or are you making progress toward getting the things you need?"

When considering the spending plan, analyze last year's spending. Using financial records or canceled checks, decide if the family spending was done wisely, she advised. Were there items purchased that were unnecessary? Did you have to do without something you really needed? Will you need to make that purchase soon? If so, is it included in your budget?

When reviewing last year's expenditures, pay special attention to credit spending. Total the amount of credit debt, excluding the home mortgage. See how much was paid for interest and finance charges. Consider if the current balance was paid each month, or were minimum payments made. Try to spend no more than about 20 percent of take-home pay for credit payments, Wright said.

"Use last year's figures as a guide for your spending plan," she said. "If you don't know what you spent, track your spending for a few months to see where your money goes. You will need to examine income and outgoing payments to make a workable spending plan."

Be sure to include categories in the spending plan for all major expenditures ? food, housing, clothing, transportation, health care, savings, education and gifts and contributions.

Next, evaluate the family emergency fund. "Did you need to use it last year? Do you anticipate using it in the near future? To build this fund, pay yourself first each month a specific amount. At the end of the month, if there's money left over, add it to the fund also," Wright said.

Then check on any investments. Consider the family's financial situation and goals for the future. Think about how investment earnings fit into the future. "Do you need to consider liquidity or safety? Can you diversify and take some risk? Once your regular savings fund is at a comfortable level, develop a system to set aside funds for future growth," she said.

Families should examine their insurance policies. Consider what is insured and if it is the right kind of insurance. "Ask, what kind of coverage do you need for your stage of life? Are premiums reasonable? Can you cut costs by increasing deductibles? If you increase deductibles, be sure to include that amount in your plan for emergency funds," she advised.

Once the net worth statement is complete, commit to doing one every year to see where the family stands and if progress is being made on financial goals. A reasonable goal is to increase net worth by at least 5 percent annually, Wright said.