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Hannah Munderloh is with the Lincoln Action Program, a community agency whose mission is to empower people struggling with poverty to reach their full potential and become self-reliant.
Munderloh answered questions about budgeting in strained economic times for this series of interviews for Money Smart Nebraska Week. Here are her edited responses.
Q: What are some of the pitfalls of budgeting in a tough economy?
A: One, credit cards. With increased rates and increased payments, it makes it hard to be able to budget. Second, lack of adjustments. With the current economic times, many people are experiencing cuts in pay. It’s important to have this reflected in your budget so if there is a cut in pay, you also can cut expenses. And third, holidays. Many people forget to budget for extra holiday expenses. It’s important to plan for holiday spending.
Q: What are some key strategies to avoid these pitfalls?
A: Include accurate income. Make sure that you are budgeting on what you actually bring home, not your gross income. Also make sure to adjust this amount if there’s a pay cut. Treat your savings account like a bill — make sure that you always try to pay into it, even when times are hard. And budget for nonmonthly expenditures. Holidays are a good example. Planning ahead for these expenses will help prevent stress in the long run.
Q: What should you do if your budget is constantly changing because of the tumultuous times? For example, just when you’ve reworked your budget, you learn of another change, either an increased electric bill or a pay cut.
A: It’s important that you aren’t spending everything that’s coming in. If possible, try to work some savings into your budget, even if it’s minimal, to offset changes that might occur. Hopefully, this will prevent bumps in the road from becoming emergencies.
Q: If too much money is going out and not enough is coming in, what can you do with your budget to fix what seems like a bigger issue?
A: First, track where your money is going. Spend a month and track all the money that you spend to pinpoint exactly where it goes. Then sit down and assess. Are you spending more on groceries than you need to? Are you going out to eat? Spending money on entertainment? When you have an idea of where your money is going, you’re able to make adjustments.
Q: Are there special tools that are useful during especially challenging times to help get a handle on your budget?
A: There are great resources online to help people set up a budget, and many organizations, including Lincoln Action Program, provide informational classes regarding budgeting and savings.
Q: Many people have cut their 401(k) savings or changed their long-term saving goals because of financial difficulties. How should a cash-strapped individual or family prioritize long-term savings if they are having a hard time making ends meet now?
A: It’s important to make sure that a family is meeting all of its needs during the year. Even if a family had to cut the amount saved, it should plan on ways to compensate for that. Planning to save a tax refund is a great first step.
Q: Many credit card companies are altering terms of their agreements with customers, leading to higher payments or a lower percentage of a payment going toward a card’s balance. How should a credit card customer tackle this debt if money already is tight?
A: Most important, don’t become delinquent on credit card payments. If it’s possible, close the card and keep making payments. Another option is to contact the creditor directly and see if you can make arrangements to pay.
Q: What should someone do in terms of budgeting if he or she learns of a pay cut or a furlough?
A: A person should review her budget and determine in advance if she can eliminate or lower certain expenses to offset having less money. If you identify possible cuts, eliminate them immediately and begin building savings to deal with emergencies if they arise.
Q: What if you’ve lost your job? How do you rework a budget with such an uncertain future?
A: Assess needs and wants. If money is limited, eliminate the wants for a while and focus on basic needs. A person who loses his or her job must be very diligent about tracking spending. This is a good practice anyway, and it will help make budgeting easier when the person finds another job.
Contact the writer:
444-1183, christine.laue@owh.com
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