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The Principles of Managing Your Finances
1986
--
Pitts, Joyce M., Home Economist
Family Economics Research Group
Home and Garden Bulletin 245-1, USDA, 1986.
50 pages
Issued October 1986

Archive copy of publication, do not use for current recommendations.

The PDF file was provided courtesy of the National Agricultural Library.

Scroll down to view the publication.
Agricultural Network Information Center




United States
Department of
Agriculture
Extension
Service
Agricultural
Research
Service
1
Managing Your Personal Finances
The Principles of Managing
Your Finances
Prepared by
Joyce M. Pitts, Home Economist
Family Economics Research Group
Agricultural Research Service
U.S. Department of Agriculture
October 1986
Home and Garden Bulletin No. HG-245-1

Preface
Managing Your Personal Finances is a budgeting guide. It is divided into three sections
which are available individually or as a set. The total guide is designed to help you
develop money management skills. It will teach you how to set goals, how to make a
budget for your circumstances, and how to plan for the future. The guide contains infor-
mation on saving and investing, using insurance and credit, and planning for retirement;
and suggests where to go for additional help. Specific information is included on:
• Developing a budget.
• Using financial tools to carry out your budget.
• Recognizing financial and economic conditions that affect your budget.
^
Section 1: The Principles of Managing Your Finances
HG-245-1
Section 2: Financial Tools Used in Money Management
HG-245-2
Section 3: Coping With Change
HG-245-3
Copies of complete sets or individual sections are for sale from:
Superintendent of Documents
U.S. Government Printing Office
Washington, DC 20402

w
^
Contents
Introduction
Chapter 1: Planning To Manage Your Money, 1.1
The Management Process, 1.1
Evaluating Your Current Situation With a Net Worth Statement, 1.2
Planning To Reach Your Goals, 1.2
Decide Which Goals Are Most Important to You, 1.3
Common Goals Throughout the Life Cycle, 1.3
Chapter 2: Achieving Your Goals Through Budgeting, 1.5
The Budgeting Process, 1.5
Choosing a Budget Period, 1.6
Developing a Successful Budget, 1.6
Estimate Your Income, 1.6
Estimate Your Expenses, 1.6
Balance, 1.8
Carrying Out Your Budget, 1.8
Become a Good Consumer, 1.8
Keep Accurate Records, 1.8
Evaluating Your Budget, 1.9
Where to Go for Help, 1.9
Chapter 3: Economizing in Your Budget, 1.11
Housing, 1.11
Determine Your Housing Needs, 1.11
Should You Rent?, 1.12
Should You Buy?, 1.12
Food, 1.14
Determine Food Expenditures, 1.15
Clothing, 1.15
Determine Clothing Expenditures, 1.16
Save on Your Clothing Budget, 1.17
Transportation, 1.17
The Cost of Owning and Operating an Automobile, 1.17
What To Consider When Purchasing a Vehicle, 1.17
Utilities, 1.19
Children, 1.19
The Cost of Having a Baby, 1.19
The Cost of Child Care, 1.20
The Cost of Raising a Child, 1.21
The Cost of Educating a Child, 1.21
Worksheets 1. Net Worth Statement, 1.25
2. Projecting Goals, 1.26
3. Estimating Your Income, 1.27
4. Expense Estimate and Budget Balancing Sheet, 1.29
5. Monthly Expense Record, 1.40
6. Total Household Expenses, 1.43

^
Introduction
I
ow well are you using resources to manage your finances in today's changing
economic environment? Resources available include money, time, energy, skills,
talents, and knowledge. Good management habits can help you direct and control
these resources so you can have the things you want and need. As a manager, you often
substitute one resource for another. To conserve money, it is often necessary to substitute
time, energy, or talents. For example, you may be able to save money by using time to
prepare meals at home instead of eating out. If you can garden or make automotive
repairs, you may be able to save money by performing these skills. By managing all
available resources you can maintain the kind of lifestyle that you want even during
periods of financial stress.
Effective management of money is a lifelong process. Whether you are a single per-
son, a single parent, a newlywed, a childless couple, a couple with children, or a retiree,
you can still benefit from developing good money management habits.
Good management of time, money, and other resources can help you to:
Increase household income while decreasing outgo.
Achieve your goals and those of other household members.
Protect household members and possessions.
^

Chapter 1
Planning To Manage Your Money
P
erhaps you have dreamed of suddenly receiving enough money to pay off all your
bills and become financially secure for life. Even if your dream came true, you
probably would find that simply having a lot of money does not end financial wor-
ries. Money problems are not restricted to low- and moderate-income households. When
more money is available, there are more alternatives to consider. Many people find that
they can control most financial problems by planning how to manage current income and
how to set goals for the future. This could work for you, too.
The Management Process
The management process is a way to reach a particular end, objective, or goal. The basic
steps include:
• Setting goals or objectives.
• Initiating activities to accomplish these goals.
Evaluating and adjusting the activities.
Repeating the process until the goals are met.
A plan for money management is important for everyone. However, no readymade
plan fits every family, couple, or individual. Every household is different—not only in the
number and characteristics of its members, but also in its values, needs, wants, and
resources. Only you can decide how your money should be spent, taking into consideration
your income, the number and ages of your household members, where you live and work,
your preferences, your responsibilities, and your goals for the future. By following a
money management plan, you can be confident that expenses will be met and savings will
be available. A plan can let you know where you stand financially and prevent emergen-
cies from causing a financial strain.
Remember three basic concepts when developing a personal money management plan:
Set realistic objectives. Objectives set too high may lead to frustrations that could
cause you to abandon your plan.
Be flexible. Your plan will require adjustments to keep up with your changing life cy-
cle and financial situation. Do not make a plan so tight that each new development re-

The Principles of Managing Your Finances
^
1.2
quires an entirely new plan.
• Be specific. State your objectives concisely. If goals are vague, objectives may never
be met and you and other household members may have different ideas of what the end
product will be.
Evaluating
Your Current Situation
With a Net Worth
Statement
The first step in developing a money management plan is to evaluate your current situa-
tion. An excellent way to do this is to prepare a net worth statement. Worksheet 1 on
page 1.25 can be used to add together your assets (what you own) and subtract from that
the sum of your liabilities (what you owe). Space is provided for you to calculate your net
worth statement now and again 1 year from now.
To determine the value of your assets, start with cash available. Include your checking
and saving accounts, as well as your home bank. Now list all your investments, including
bonds, mutual funds, life insurance cash values, and others. List additional assets, using
the current market value for your house, real estate, automobiles, jewelry, antiques, and
other personal items.
To determine your liabilities, list the amount that you owe to all your creditors and
lenders. Remember to include current bills, charge accounts, mortgage balance, and loans
against your life insurance.
By subtracting liabilities from assets, you can determine your net worth. Look closely
at your final net worth figure. Do you own more than you owe? Consider what you would
like this figure to be a year from now. What do you need to do to achieve that goal?
Prepare a new net worth statement at the same time each year to reflect the changes in
your finances. The market value of your assets (house, stock, or cars) may have declined
or risen. You may have paid off one loan or gained another. A new net worth statement
next year will help you decide if the money management plan you are developing now has
helped put you ahead.
Planning To Reach
Your Goals
An important step in developing a money management plan is to set household and in-
dividual goals. Goals are wants, needs, and future objectives for your household and its
members. Goals may be long-term, intermediate, or immediate.
Long-term goals are those you hope to reach in 10 to 20 years or perhaps even
longer. Long-term goals are often considered first so they can be incorporated into the
plan from the start. They are guided by expected changes in your household's life cycle
and must sometimes be adjusted for future expected income and price changes. Long-term
goals include such things as paying off a mortgage, putting children through college, or
providing for a comfortable retirement.
Intermediate goals are those to be reached within the next 5 years or so. These goals
may reflect the changes that will occur due to your increased income or larger family. In-
termediate goals might include such things as a downpayment on a house, a new car, or
increased life insurance.
Immediate goals are required now—this week, this month, or this year. These are
basic needs that must be met even at the expense of some future goals. Immediate goals
may include paying current bills, maintaining health insurance, and buying food and
clothing.
Addressing goals in this order ensures savings for long-term and intermediate goals
and prevents immediate goals from pushing future ones aside. If your income is low, you
may be able to meet only immediate goals. But you still should make intermediate and
long-term plans which could help you to get ahead in the future.

Planning To Manage Your Money
1.3
Decide Which Goals Are Most Important to You
Think carefully about your financial goals. Many of us would like to be financially secure,
own a large home, drive a fancy car, educate ourselves or our children, take long vaca-
tions, and so on. Realistically, however, most of us cannot have it all. We must select and
work toward those goals that are most important to us and the ones which we will be able
to obtain. The following process may help you work through your goal-selection decisions.
Set goals.
Keep a listing of the goals that you and your family hope to achieve. Use
worksheet 2 on page 1.26.
Rank goals.
List your goals in their order of importance to you and your household.
Assign dollar values to goals.
You will not be able to assign a dollar value to all
goals now, but to most you will. For example, if you plan to buy a new car next year and
you know the amount of the downpayment, put this on your worksheet.
Reevaluate your goals.
After developing your budget in Chapter 2, take another look
at worksheet 2. You may need to drop, postpone, or revise some of your goals. Decide
how much change you are willing and able to make. For example, are you willing to
change jobs or give up other goals in order to achieve a goal that is more important to
you? Think about the tradeoffs of saving for long-term and intermediate goals versus using
income for current expenses. How much choice do you have? Can you, and do you want
to, cut down on some immediate goals (current expenses) to improve your chances of
meeting your long-term goals? Refer to your goals often as you plan.
Common Goals Throughout the Life Cycle
Some goals are universal to all households—such as providing for sufficient food, comfort-
able shelter, and financial security. But most goals change as household members progress
through the life cycle. When you are young and single, goals generally relate to your own
personal development. When you are married and have children, your first priorities may
switch from yourself to your children—establishing an educational fund, for example. Dif-
ferent types of households use different ways to meet the same goal. For example, a
retired couple may provide for their continued financial security during times of high infla-
tion by cutting expenses. A young couple may seek higher paying employment instead.
Look over the following description of household types and determine which group
your household resembles. Do you have goals similar to the ones stated for your group?
Look at the goals for the other groups. They may help you anticipate future needs. This
listing is not meant to be all-inclusive. However, it can be a starting point in determining
your current and long-term goals and how those goals may change in years to come.
Household Type 1: Singles.
This household type consists of adults who have never
married, or who are widowed or divorced. It includes persons from age 18 to 54 who are
considered to be self-supporting, even though they may be living with relatives or friends
and sharing some household expenses. Income for this group may not be high, particularly
for the younger members. Important goals involve their personal, educational, and finan-
cial development.
Household Type 2: Single Parents.
Members of this household group may also have
never married or are widowed or divorced. Unlike Type 1 households, they are parents
living with dependent children. The critical financial goals for single parents often relate to
the care of their children and themselves.
Household Type 3: Young Couples.
This household type is often called the beginning
family or the beginning marriage stage. It is a period of personal and financial adjustment

The Principles of Managing Your Finances
for two persons. Ages of couples in this group typically range from about 18 to 34. There
are no children and there are often two incomes. Important goals involve setting up a
household and adjusting to each other's needs.
Household Type 4: Young Families.
In this growing-family stage, parents are
typically young—age 18 to 34—and have dependent children in the household. There may
be two incomes. Critical goals include protecting the family income and rearing the
children.
Household Type 5: Middle Families.
This household type is sometimes referred to as
the contracting family. Parents are typically 35 to 54 years old. Children are "leaving the
nest" for college, careers, and marriage. Unique goals for this household include pro-
viding for the children's college or vocational education, weddings, and the parents' even-
tual retirement.
Household Type 6: Middle Couples.
This group consists of persons age 35 to 54
without children. This type of household often contains two earners. Income is often quite
high, making investment maximization and tax minimization important financial goals.
Household Type 7: Older Singles.
This group contains persons age 55 and older who
may be retired. There is no spouse present in the household. The majority of older singles
are females. The major financial goal is to provide adequate income and reserves that will
last for the balance of the older single's lifetime.
Household Type 8: Older Couples.
This group consists of married couples ages 55
and over who also may be retired. Their major financial goal is maintenance of an ade-
quate level of living for both persons for life.

Chapter 2
^
Achieving Your Goals Through Budgeting
D
o you often find yourself unable to make one paycheck last until the next arrives?
Do you meet current expenses but have little or nothing left to save for the future?
If so, you are a prime candidate for developing a budget. You may have these
problems whether you earn $50,000 a year or $10,000 a year. Even if you rarely face
these situations, a budget can probably help you achieve more of your goals.
The Budgeting Process
A budget is a plan for spending and saving. It requires you to estimate your available in-
come for a particular period of time and decide how to allocate this income toward your
expenses. A working budget can help you implement your money management plan. A
well-planned budget does several things for you and your household. It can help you:
Prevent impulse spending.
Decide what you can or cannot afford.
Know where your money goes.
Increase savings.
Decide how to protect against the financial consequences of unemployment, accidents,
sickness, aging, and death.
A working budget need not be complicated or rigid. However, preparing one takes plan-
ning, and following one takes determination. You must do several things to budget
successfully.
First, communicate with other members of your household, including older children.
Consider each person's needs and wants so that all family members feel they are a part of
the plan. Everyone may work harder to make the budget a success and be less inclined to
overspend if they realize the consequences. When families fail to communicate about
money matters, it is unlikely that a budget will reflect a workable plan.
Second, be prepared to compromise. This is often difficult. Newlyweds, especially,
may have problems. Each may have been living on an individual income and not be ac-
customed to sharing, or may have been in school and dependent on parents. If, for exam-
ple, one wants to save for things and the other prefers buying on credit, they will need to

The Principles of Managing Your Finances
discuss the pros and cons of both methods and decide on a middle ground each can accept.
A plan cannot succeed unless there is a financial partnership.
Third, exercise willpower. Try not to indulge in unnecessary spending. Once your
budget plan is made, opportunities to overspend will occur daily. Each household member
needs to encourage the others to stick to the plan.
Fourth, develop a good recordkeeping system. At first, all members of the household
may need to keep records of what they spend. This will show how well they are following
the plan and will allow intermediate adjustments in the level of spending. Recordkeeping is
especially important during the first year of a spending plan when you are trying to find a
budget that works best for you. Remember, a good budget is flexible, requires little
clerical time, and most importantly, works for you.
^
Choosing
a Budget Period
A budget may cover any convenient period of time—a month, 3 months, or a year, for ex-
ample. Make sure the period you use is long enough to cover the bulk of household ex-
penses and income. Remember, not all bills come due monthly and every household ex-
periences some seasonal expenses. Most personal budgets are for 12 months. You can
begin the 12-month period at any time during the year. If this is your first budget, you
may want to set up a trial plan for a shorter time to see how it works.
After setting up your plan, subdivide it into more manageable operating periods. For a
yearly budget, divide income and expenses by 12, 24, 26, or 52, depending on your pay
schedule or when your bills come due. Most paychecks are received weekly or every 2
weeks. Although most bills come due once a month, not all are due at the same time in
the month. Try using each paycheck to pay your daily expenses and expenses that will be
due within the next week or two. This way you will be able to pay your bills on time.
You may also want to allocate something from each paycheck toward large expenses that
will be coming due soon.
Developing
a Successful Budget
Step 1: Estimate Your Income
Total the money you expect to receive during the budget period. Use worksheet 3 on
page 1.27 as a guide in estimating your household income. Total all money you will
receive. Begin with regular income that you and your family receive—wages, salaries,
income earned from a farm or other business, Social Security benefits, pension payments,
alimony, child support, veterans' benefits, public assistance payments, unemployment com-
pensation, allowances, and any other income. Include variable income, such as interest
from bank accounts and investments, dividends from stock and insurance, rents from prop-
erty you own, gifts, and money from any other sources.
If your earnings are irregular, it may be more difficult to estimate your income. It is
better to underestimate than overestimate income when setting up a budget. Some
households have sufficient income, but its receipt does not coincide with the arrival of
bills. For these households, planning is very important.
Step 2: Estimate Your Expenses
After you have determined how much your income will be for the planning period,
estimate your expenses. You may want to group expenses into one of three categories:
fixed, flexible, or set-asides. Fixed expenses are payments that are basically the same
^

Achieving Your Goals Through Budgeting
amounts each month. Fixed regular expenses include such items as rent or mortgage
payments, taxes, and credit installment payments. Fixed irregular expenses are large
payments due once or twice a year, such as insurance premiums. Flexible expenses may
vary from one month to the next, such as amounts spent on food, clothing, utilities, and
transportation. Set-asides are variable amounts of money accumulated for special purposes,
as for seasonal expenses, savings and emergency funds, and intermediate and long-term
goals.
Use old records, receipts, bills, and cancelled checks to estimate future expenses, if
you are satisfied with what your dollars have done for you and your family in the past. If
you are not satisfied, now is the time for change. Consider which expenses can be cut
back and which expenses need to be increased. If you spent a large amount on entertain-
ment, for example, your new budget may reallocate some of this money to a savings ac-
count to contribute to some of your future goals.
If you do not have past records of spending, or if this is your first budget, the most
accurate way to find out how much you will need to allow for each expense is to keep a
record of your household spending. Carry a pocket notebook in which you jot down ex-
penditures during a week or pay period and total the amounts at the end of each week.
You may prefer to keep an account book in a convenient place at home and make entries
in it. Kept faithfully for a month or two, the record can help you find out what you spend
for categories such as food, housing, utilities, household operation, clothing, transporta-
tion, entertainment, and personal items. Use this record to estimate expenses in your plan
for future spending. You also need to plan for new situations and changing conditions that
increase or decrease expenses. For example, the cost of your utilities may go up.
Total your expenses for a year and divide to determine the amounts that you will have
to allocate toward each expense during the budgeting period. Record your estimate for
each budgetary expense in the space provided on worksheet 4, "Expense Estimate and
Budget Balancing Sheet"(pages 1.29-1.39). Begin with the regular fixed expenses that you
expect to have. Next, enter those fixed expenses that come due once or twice a year.
Many households allocate a definite amount each budget period toward these expenses to
spread out the cost.
One way to meet major expenses is to set aside money regularly before you start to
spend. Keep your set-aside funds separate from other funds so you will not be tempted to
spend them impulsively. If possible, put them in an account where they will earn interest.
You may also plan at this point to set aside a certain amount toward the long-term and in-
termediate goals you listed on worksheet 2. Saving could be almost as enjoyable as spend-
ing, once you accept the idea that saving money is not punishment, but a systematic way
of reaching your goals. You do without some things now in anticipation of buying what
will give you greater satisfaction later.
You may want to clear up debts now by doubling up on your installment payments or
putting aside an extra amount in your savings fund to be used for this purpose. Also,
when you start to budget, consider designating a small amount of money for emergencies.
Extras always come up at the most inopportune times. Every household experiences occa-
sional minor crises too small to be covered by insurance but too large to be absorbed into
the day-to-day budget. Examples may be a blown-out tire or an appliance that needs
replacing. Decide how large a cushion you want for meeting emergencies. As your fund
reaches the figure you have allowed for emergencies, you can start saving for something
else. Now, record money allocated for occasional major expenses, future goals, savings,
emergencies, and any other set-asides in the space provided for them on worksheet 4.
After you have entered your fixed expenses and your set-asides, you are ready to con-
sider your flexible expenses. Consider including here a personal allowance or "mad

The Principles of Managing Your Finances
money" for each member of the household. A little spending money that does not have to
be accounted for gives everyone a sense of freedom and takes some of the tedium out of
budgeting.
Step 3: Balance
Now you are ready for the balancing act. Compare your total expected income with the
total of your planned expenses for the budget period. If your planned budget equals your
estimated future income, are you satisfied with this outcome? Have you left enough leeway
for emergencies and errors? If your expenses add up to more than your income, look
again at all parts of the plan. Where can you cut down? Where are you overspending?
You may have to decide which things are most important to you and which ones can wait.
You may be able to do some trimming on your flexible expenses.
Once you have cut back your flexible expenses, scan your fixed expenses. Maybe you
can make some sizable reductions here, too. Rent is a big item in a budget. Some
households may want to consider moving to a lower priced apartment or making different
living arrangements. Others turn in a too-expensive car and seek less expensive transporta-
tion. Look back at worksheet 2, "Projecting Goals. "You may need to reallocate some of
this income to meet current expenses. Perhaps you may have to consider saving for some
of your goals at a later date.
If you have cut back as much as you think you can or are willing to do and your plan
still calls for more than you make, consider ways to increase your income. You may want
to look for a better paying job, or a part time second job may be the answer. If only one
spouse is employed, consider becoming a dual-earner family. The children may be able to
earn their school lunch and extra spending money by doing odd jobs in your
neighborhood, such as cutting grass or babysitting. Older children can work part-time on
weekends to help out. Another possibility, especially for short-term problems, is to draw
on savings. These are decisions each individual household has to make.
If your income exceeds your estimate of expenses—good! You may decide to satisfy
more of your immediate wants or to increase the amount your family is setting aside for
future goals.
Carrying Out Your Budget
After your plan is completed, put it to work. This is when your determination must really
come into play. Can you and your family resist impulse spending?
Become a Good Consumer
A vital part of carrying out the budget is being a good consumer. Learn to get the most
for your money, to recognize quality, avoid waste, and to realize time costs as well as
money costs in making consumer decisions.
Keep Accurate Records
Accurate financial records are necessary to keep track of your household's actual money
inflow and outgo. A successful system requires cooperation from everyone in the
household. Receipts can be kept and entered at the end of each budget period in a
^

^
Achieving Your Goals Through Budgeting
"Monthly Expense Record" like the one on pages 1.40-1.41 (worksheet 5). It is
sometimes a good idea to write on the back of each receipt what the purchase was for,
who made it, and the date. Decide which family member will be responsible for paying
bills or making purchases and decide who will keep the record system up to date.
The household business recordkeeping system does not need to be complex. The
simpler it is, the more likely it will be kept current. Store your records in one place—a set
of folders in a file drawer or other fire-resistant box is a good place. You can assemble a
folder for each of several categories, including budget, food, clothing, housing, insurance,
investments, taxes, health, transportation, and credit. Use these folders for filing insurance
policies, receipts, warranties, cancelled checks, bank statements, purchase contracts, and
other important papers. Many households also rent a safe deposit box at their bank for
storing deeds, stock certificates, and other valuable items.
Evaluating Your Budget
The information on worksheet 4 can help you determine whether your actual spending
follows your plan. If your first plan did not work in all respects, do not be discouraged. A
budget is not something you make once and never touch again. Keep revising until results
satisfy you.
Where To Go for Help
Management of your personal finances is a lifelong project. The information contained
here is not all that you need to know about money management, but it can provide a start-
ing place.
An important step in personal financial planning is deciding which money management
tasks you can perform for yourself and which will require some assistance. There are cer-
tain aspects of the financial plan that all households can do:
Setting and evaluating personal goals.
Determining household income and basic expenses.
Allocating income to meet expenses promptly.
Becoming a knowledgeable consumer.
Managing day-to-day financial records.
However, if you need help with other aspects of your plan, many sources are available.
Publications on money management are available at libraries and bookstores and from
private companies and organizations, the Cooperative Extension Service, and local, State,
and Federal governments. When using consumer materials from private organizations,
realize that although they may provide excellent information, some are not always
objective.
Computers can also help you develop your personal financial plan. The increased
availability and decreased cost of computers, peripherals (added hardware), and software
have made computerized financial management at home a reality. Programs can be pur-
chased to assist in budgeting, recordkeeping, and income tax preparation. More
sophisticated software is available that will print checks, balance checkbooks, and track the
performance of investments. If owning a home computer is not practical or affordable for
your household, you still may be able to have a computerized analysis of your finances,
since many local colleges, community governments, libraries, and Cooperative Extension
Services sometimes provide computerized financial planning for little or no fee.
Financial planners help you develop a total financial plan for your household. These
professionals vary in their educational and occupational backgrounds and in the kind of
assistance that they provide. Some have earned the title of Certified Financial Planner
(CFP) from one of several colleges that offer financial planning programs; some are ap-

Financial Tools Used in Money Management
S>
pointed financial consultants by the companies for which they work, such as financial plan-
10 ning companies, brokerage firms, banks, insurance companies, or department stores.
Professional financial planning usually requires that you provide the planner with
specific information concerning your goals, income, expenses, spending habits, and prob-
lems. In return, you receive specific recommendations on how to achieve your goals and
correct financial problems, as well as suggestions on tax, insurance, investment, retire-
ment, and estate planning alternatives. Fees are charged on an hourly basis, at a flat rate,
or on a scale according to your assets. Following through on the recommendations of a
financial planner could also cost you brokerage, insurance, and attorney's fees.
Brokers are agents licensed to buy and sell certain products or services for a commis-
sion. Stock brokers help you handle your investments, real estate brokers help you buy
and sell property, and insurance brokers help you select insurance plans. A brokerage
license often indicates that the person holding the license has more experience or more
training than other agents in the field.
Insurance agents sell life, property, automotive or health insurance, and may work for
one particular company or as an independent agent (who can submit application for
coverage to any one of several companies). Insurance agents, like brokers, work on
commission.
Bankers can also be helpful to you in carrying out your financial plan. Become
familiar with the manager, tellers, and other personnel at your local branch. Being
recognized as a steady customer may be beneficial should you go to them for a loan. You
may also want to consult bank personnel when selecting saving and investment options.
Income tax preparer. If your income tax return is complicated, you may need the
assistance of an accountant or other professional income tax preparer.
Lawyers can advise you on a variety of legal matters. The legal system is complicated
and varies from State to State. If you are planning to write a will, set up an estate, pur-
chase a house, or sign a complicated contract, it is a good idea to consult with an at-
torney. If you do not know a lawyer, you can often get referrals through your union,
credit union, or local legal clinic.

^
Chapter 3
Economizing In Your Budget
A
n effective money manager knows how each expense in the budget affects the
overall spending plan. Knowing when and how to economize on parts of the
budget is important. This chapter will take a closer look at housing, food,
clothing, and transportation expenses, as well as the expenses associated with raising
children.
Housing
For most households, housing costs make up the largest part of the budget. Whether you
rent or buy, or even if your house is paid for, a substantial monthly cash allowance is re-
quired for housing. The housing section of the budget includes rent or mortgage payments,
utilities, taxes, insurance, repairs, maintenance, improvements, furnishings, and decorating
costs.
Determine Your Housing Needs
The amount a family or individual will spend on housing and the kind of housing chosen
depends on:
The household income.
The size of the household.
The permanence of household members' jobs.
The location preferred.
The family's values and attitudes.
The extent of nonhousing needs and obligations.
The stage in the life cycle.
Deciding whether to rent or buy housing is sometimes a difficult decision. The initial cost
of purchasing is high, but the cost of renting has also increased. There are also choices to
consider in the kind of housing to select: single-family houses, townhouses, duplexes,

The Principles of Managing Your Finances
_
triplexes, quadplexes, apartments, and mobile homes are all available for renting and buy-
m
l- The housing decision is not made often, and it will affect everyone in the household,
so consider all the alternatives carefully.
Should You Rent?
Renting is often suitable for couples or single persons just starting out, families with low
incomes or few assets, retirees trying to cut down on expenses, people with jobs that are
unsteady or require frequent moving, or anyone not wanting ownership responsibilities.
Renting has several advantages over owning:
Since there is no large downpayment or capital debt, renting is often less expensive.
Since renting is more flexible, your family has more freedom to move.
Since the landlord is responsible for upkeep, rental property should cost you no major
repair expenses.
Since no equity is gained in rental property, a reversal in your financial position will
not endanger your investment.
Of course, renting also has disadvantages. As a tenant you:
Have little or no freedom to improve the property.
Build no equity.
• Cannot prevent the landlord from raising the rent or forcing you to move once your
lease expires.
Price, size, and location are important factors to consider when selecting a rental unit.
Units may be modest or expensive, but all usually require initial costs in addition to the
first month's rent. Be prepared to make a security deposit and perhaps pay a month's rent
ahead as well.
A rental lease involves a financial commitment that usually lasts a year. Before sign-
ing, find out if there are expenses not covered by the rent, what the tenants' and the
landlord's rights and responsibilities are, what specific rules and regulations tenants must
follow, and what kinds of changes tenants are allowed to make on the property. Look over
your rental unit carefully for needed repairs before moving in. Consider making a list of
all defects and sending a copy to your landlord. This may prevent a deduction from your
security deposit when you move out.
Should You Buy?
If you are part of a large family requiring a lot of space, a young family with plans for
more children, or anyone wanting to establish ownership — and if you can afford the
downpayment, closing costs, and mortgage payments— then you are a prime candidate for
homeownership. The decision to purchase must be carefully considered, since this is prob-
ably the largest single expenditure that you will make. Before deciding to buy, however,
you should analyze future needs, desires, and financial prospects. A large mortgage debt
with high monthly payments can become a major hardship to a household experiencing
prolonged unemployment, illness, disability, or decreased income. Of course, owning a
home has certain advantages:
• Historically, homeownership has been one of the best and safest forms of investment.
• Homeownership has provided protection against inflation, building a sizable equity ^^
over the years.
• Homeowners are able to take advantage of income tax deductions for mortgage interest

Economizing in Your Budget
and property taxes.
Homeownership can give the family a feeling of permanence and pride.
Buying also has some disadvantages:
Purchasing requires a large initial output of funds—more than some people are able to
afford.
The equity in the property is not readily available.
High interest rates can make monthly payments very high.
If you have decided to purchase a home, you will need to determine how much you
can afford to spend. This depends on your current net income, your current nonhousing
expenses, and the amount of savings you have available for a downpayment. Total your
monthly expenses leaving out all housing-related costs, such as rent and utilities. Subtract
this sum from your total monthly net income. The difference between the two is the
amount that you have available for housing each budget period. Is this amount enough to
allow you new housing? Estimate what your housing expenses would be after purchasing.
Add together monthly mortgage payments, condo fees, property taxes and insurance,
utilities, and decorating and maintenance costs on the new property. Say, for example,
after other expenses you are left with $750 for housing and the home that you want to buy
requires $550 in mortgage payments. Is $200 enough to pay your other housing-related
expenses—such as taxes, insurance, and utilities—each month? Also take into consideration
the cost of moving into a new home. You may have to budget for things like decorating,
new furnishings, remodeling, cleaning, and yard equipment.
After determining that you have enough income to purchase a home, the next step is
to decide whether now is a good time to purchase. Consider these factors:
Is your income and family life stable?
• Is your credit record good?
• Is financing available?
• Are current interest rates acceptable?
• Are the housing and real estate markets stable?
If you answered yes to most of these questions, you may be ready to begin the search
for your new home. To find the right house, or apartment, consult friends and neighbors,
look at newspaper ads, or tour residential areas that appeal to you. You may need a real
estate agent to assist you in your search. When deciding on a neighborhood, consider its
proximity to schools, recreation and medical facilities, churches and synagogues, public
transportation, and stores.
Keep a written record of the properties you inspect to help remember such things as
the property's location, asking price, owner's name, number of rooms, utility costs, and
special features. Do not hesitate to carefully inspect the property several times before mak-
ing a decision. Don't be tempted to commit yourself to larger housing payments than you
can afford.
Once you have selected the property you want to buy, you will need financing. Again,
a reputable real estate company can help you find a loan. If you are buying into a new
development, the developers may already have a mortgage lender with whom they work.
In addition to traditional fixed-rate, fixed-payment mortgages, various alternative mort-
gage instruments are used today to enable more households to afford mortgage payments
and to shift some of the risk of increased inflation from lenders to borrowers. For exam-
ple, the payments on a graduated payment mortgage (GPM) are low in the early years and
gradually increase at a predetermined rate with the age of the mortgage (and, ideally, the
family's income). The adjustable-rate mortgage (ARM) and the variable rate mortgage
(VRM) have interest rates and payments that can increase and decrease, within certain
limits, depending on economic conditions. A roll-over mortgage (ROM), rarely used today

The Principles of Managing Your Finances
for first mortgages, sets up fixed payments for a few years. At the end of that time,
j J4 typically around 5 years, the loan must be paid off or refinanced.
Review your current and future financial situation carefully before committing yourself
to one of these mortgages. If your income should decrease or not increase as fast as the
mortgage payments, you could end up with higher monthly payments than you can afford.
In some cases, the additional amount that you owe due to an increase in your interest rate
is not added to your monthly payments but to your principal. This "negative amortiza-
tion" causes the loan balance to increase even though payments are made as scheduled. Of
course if interest rates go down, payments would decrease. Consider these points when
deciding if you are a good candidate for variable-mortgage payments:
Is your long-term employment secure?
Does your household income increase regularly?
Are you unlikely to acquire additional large debts over the next few years?
Are your other expenses likely to stay somewhat stable?
Do you have additional assets to draw on in an emergency?
Do you believe that interest rates will rise slowly or go down?
Ask prospective lenders these questions before making a final decision:
1. What index is used to determine interest rate changes?
Lenders must base changes on an index over which they have no control. Many
use the average rate of return on U.S. Treasury securities.
2. What margin is used?
A margin is the amount over the index that lenders add to cover costs. For exam-
ple, if Treasury bills earned an average of 10 percent and your lender uses a 3
percent margin, your new interest rate would be 13 percent. The margin used
varies among lenders, so you will want to compare.
3. How often will the interest rate be adjusted?
1-, 3-, and 5-year ARM's are common. The longer the time between adjustments
in payments, the higher the initial interest rate is likely to be.
4. What kind of protection does the loan provide against skyrocketing increases?
Loans are available with caps (or limits) on how much monthly payments or in-
terest rates can increase monthly, yearly, or over the life of the loan.
5. Will the lender refinance any balloon payments?
A balloon payment refers to one large final payment, as in roll-over mortgages.
Check with several lenders before deciding on a loan. Compare the benefits of a fixed-rate
mortgage with those of the variable-rate mortgage.
Food
The food expenditure is another large part of a family's household budget. Proper purchas-
ing, storage, and preparation of food is very important to the health and well-being of
family members. Careful time and money management is necessary to provide economical
and nutritious meals.
Everyone needs a well-balanced diet for energy and growth. The body needs certain
nutrients. These nutrients can be obtained by serving your family a variety of foods from
the four basic food groups daily: (1) meat, poultry, fish, and legumes, (2) fruits and
vegetables, (3) bread and cereals, and (4) milk and cheese. Having good eating habits
means avoiding too much sugar, fat, and salt in your diet.

Economizing in Your Budget
Determine Food Expenditures
The amount that your household will spend on food depends on the number of adults and
children in your family, personal tastes, and special nutritional requirements. To help you
estimate how you might allocate your food dollars, the U.S. Department of Agriculture
has developed four food plans—thrifty, low-cost, moderate-cost, and liberal. They can help
you provide a nutritious diet at a price you can afford. The higher cost food plans
(moderate-cost and liberal) generally contain greater quantities of meat, poultry, fish,
fruits, and vegetables than the lower cost food plans (thrifty and low-cost), which contain
more grains. The thrifty food plan is the least expensive. It relies heavily on dry beans
and peas, flour, bread, and cereals; it includes smaller amounts of meats, poultry, and fish
than families typically use. Households under the thrifty and low-cost food plan purchase
lower cost food items within each food group—ground beef instead of porterhouse steak,
for example. Households with more to spend on food will probably want to use the
moderate-cost or liberal food plan for guidance on food spending.
To decide which food plan is appropriate for your family, use Table 1 to find the food
plan for households that have an income and size that is similar to yours. Table 2 on page
1.16 shows the cost of food at home for each cost level. Notice that in June 1985 the
weekly food expenditure for a young family with two elementary school age children was
$62.00 under the thrifty plan, $78.80 under the low-cost plan, $98.20 under the moderate-
cost plan, and $117.80 under the liberal plan.
Clothing
Although the basic purpose of clothing is body protection, it often reflects your personal-
ity, confidence, and self-esteem. It is important to select clothing that looks good, fits
well, and is durable yet comfortable. A wide range of prices for most clothing allows you
to make the most of your clothing budget dollars without sacrificing these qualities.
Table 1 . Food Plans by Size and Income of Family
1
Family size
One
Two
persons
72
T2 or LC
LC or MC
LC or MC
MC
MCor L
L
'To use this table: Locate the column that corresponds to the number of
persons in the family. Then move down this column to the point opposite
the family income before taxes are deducted. The plan shown there costs
about the amount a typical household (of similar size and income) spends
for food. It is the plan a family of that size and income can usually afford.
Income before taxes
person
Under $5,000 T
2
$5,001 -$10,000
$10,001 -$15,000
$15,001 -$20,000
$20,001 -$30,000
$30,001 -$40,000
$40,001 or more
T Thrifty LC Low cost
LC
MC
MCor L
L
L
L
MC Moderate cost L Liberal
Three
persons
T*
T
2
T o r L C
LC
LC
MC
MC or L
Four
persons
T*
T
2
T
2
or LC
T o r
LC
LC
LC or MC
MC
Five
persons
T
2
T
2
T
2
T o r L C
T o r
LC
LC
LC or MC
Six
persons
T*
T*
T
2
T
2
or LC
T o r L C
LC
LC or MC
•'Many families of this size and income are eligible for assistance through
the Food Stamp Program. For further information, contact your welfare
department.
SOURCE: Odland, Diane and Carole Davis. 1984. Your Money's Worth in
Foods, USDA, Home and Garden Bulletin No. 183.

The Principles of Managing Your Finances
^
1.16
Determine Clothing Expenditures
Clothing expenditures within each household will vary from member to member. The
amount to allocate for each person will depend not only on the family income, but also
their sex and age (are they still growing?), activities (school, work, sports), standards (and
those of their peers), and personal preferences.
Clothing expenses for employed adults usually exceed those for other adults. Clothing
expenses for persons who entertain frequently will be greater than those who do not.
Clothing expenses for school age children increase with age all during the school years.
Preschool children who are still growing may require a new wardrobe each season.
Table 2. Cost of Food at Home Estimated for Food Plans at 4 Cost Levels, June 1985, U.S. Average
1
Sex-age group
Families
Family of 2:
2
20-50 years
51 years and over
Family of 4:
Couple, 20-50 years and children—
1-2 and 3-5 years
6-8 and 9-1 1 years
Individuals
3
Child:
1-2 years
3-5 years
6-8 years
9-11 years
Male:
12-14 years
15-19 years
20-50 years
51 years and over
Female:
12-19 years
20-50 years
51 years and over
Cost for
Thrifty
plan
$37.00
35.00
53.80
62.00
9.70
10.50
13.00
15.40
16.10
16.70
17.70
16.10
16.00
15.90
15.70
1 week
Low-cos
plan
$46.40
44.30
67.00
78.80
11.80
13.00
17.10
19.50
22.10
22.90
22.50
21.30
19.00
19.70
19.00
it Moderate
cost plan
$57.10
54.40
81.50
98.20
13.70
15.90
21.40
24.90
27.40
28.30
28.10
26.10
23.00
23.80
23.40
- Liberal
plan
$70.40
65.10
99.50
117.80
16.40
19.10
24.90
28.90
32.20
32.80
33.80
31.30
27.70
30.20
27.90
Cost for 1
Thrifty
plan
$160.20
151.40
233.40
268.50
42.10
45.70
56.20
66.70
69.60
72.60
76.80
69.70
69.10
68.80
67.90
month
Low-cost
plan
$201.10
192.20
289.90
341 .40
51.00
56.10
74.20
84.40
95.60
99.10
97.50
92.30
82.50
85.30
82.40
Moderate-
cost plan
$247.60
236.30
353.30
425.80
59.20
69.00
92.70
108.00
118.90
122.40
121.90
113.30
99.70
103.20
101.50
Liberal
plan
$305.20
282.00
431.70
510.80
71.30
82.90
108.10
125.20
139.50
142.00
146.50
135.40
120.10
131.00
121.00
'Assumes that food for all meals and snacks is purcnased at the store and
prepared at home. The costs of the food plans are estimated by updating
prices paid by households surveyed in 1977-78 in USDA's Nationwide
Food Consumption Survey. USDA updates these survey prices using infor-
mation from the Bureau of Labor Statistics to estimate the costs for the
food plans.
2
10 percent added for family size adjustment. See footnote 3.
3
The costs given are for individuals in 4-person families. For individuals in
other size families, the following adjustments are suggested: 1-person-
add 20 percent; 2-person—add 10 percent; 3-person—add 5 percent; 5- or
6-person—subtract 5 percent; 7- or more-person—subtract 10 percent.
Source: U.S. Department of Agriculture, Family Economics Research
Group. 1985. Family Economics Review 1985(4).

Economizing in Your Budget
1.17
Save on Your Clothing Budget
You can do some things to cut down on clothing expenses. If you are skilled in sewing
and enjoy handiwork, try making some of your family's clothing. Sewing can be a
money saver for anyone who has the skill, time, and equipment necessary and selects
economical supplies and materials. Shopping at yard sales and secondhand stores is another
way to save considerably on clothing. However, if your family has bad feelings about
wearing recycled clothing, your purchase could be money wasted instead of money saved.
When you buy new, readymade clothing, make your money go further by planning ward-
robes, shopping wisely, reading labels, recognizing quality clothing, and following care
instructions.
Transportation
^
Dependable transportation is an important asset to every household. Persons who can con-
veniently depend on public transportation are fortunate. Unless you live in an urban or
heavily populated suburban area, however, public transportation may not be available, so
most families own a car. Purchasing, owning, and operating a car involves a considerable
cost. Car pooling has become a popular way of cutting some of these costs. Several riders
travel together sharing the related expenses of-driving to work, shopping, church, and
even long trips. Walking to nearby locations is another alternative that not only saves
money but is good exercise. Renting or leasing a car is an alternative for some people, as
is riding a bicycle or motor bike.
The Cost of Owning and Operating an Automobile
If you decide to purchase a car, know the costs involved. Then you can look for a car that
will best fit your budget. Know how the size of the car affects maintenance and ownership
costs in terms of fuel efficiency, repair costs, and insurance rates. The chart on page 1.18
gives a breakdown of the total cost per mile to drive cars and vans. Information from the
U.S. Department of Transportation shows that over a 12-year period the total cost for
driving a car 120,000 miles is $36,751 for a large-sized American car, $47,111 for vans,
$27,259 for subcompacts, $33,415 for intermediates, and $27,968 for compacts. Deprecia-
tion is the largest single expense involved in owning a car. Larger automobiles generally
lose value faster than smaller ones do. Other expenses include maintenance, gas and oil,
parking and tolls, insurance, and taxes.
What To Consider When Purchasing a Vehicle
To determine how well the purchase of a car will fit into your budget, ask yourself these
questions:
What kind of transportation do I need?
What will I use the vehicle for?
Can I afford the cost of maintaining the size vehicle I want?
What price am I willing to pay?
Who else in the household will be driving the vehicle?
What will I have to give up in order to afford the vehicle?
Will a used car or other transportation do?

The Principles of Managing Your Finances
^
1.18
• Would it be to my financial advantage to save and pay cash or to use credit to buy an
automobile?
• If I am buying on credit, how much can I afford as a downpayment?
• Will my trade-in cover the cost of the downpayment?
• How large a monthly payment can fit comfortably into my budget?
• Will owning a car make other economic opportunities available to me?
Visiting several car dealerships could result in a considerable savings, since prices
may vary widely. Check the price of the model you have decided on and the amount each
Cost of Owning and Operating Automobiles and Vans, 1984
Suburban-Based Operation
total costs: cents per mile
Size
Original
Vehicle Cost
Depreciated
Maintenance,
Accessories,
Parts & Tires
Gas
&
Oil
(Excluding
Taxes)
Parking
& Tolls Insurance
State &
Federal
Taxes
Total
Cost
Large
WITH STANDARD EQUIP-
MENT, WEIGHT MORE THAN
3,500 LBS. EMPTY
9.6
Intermediate
WEIGHT LESS THAN
3,500 LBS. EMPTY
Compact
WEIGHT LESS THAN 3,000
LBS. EMPTY
8.6
7.3
6.0
5.2
4.6
7.0
0.9
4.9
5.7
0.9
5.6
4.6
0.9
4.3
2.2
1.8
1.6
30.6
27.8
23.3
Subcompact
WEIGHT LESS THAN 2,500
LBS. EMPTY
5.9
5.1
4.4
0.9
5.0
1.4
22.7
Passenger Van
WEIGHT LESS THAN 5,000
LBS. EMPTY
10.7
6.9
9.1
0.9
8.9
2.7
39.2
SOURCE: U.S. Department of Transportation, Highway Statistics Division. 1984.
Cost of Owning and Operating Automobiles and Vans.

Economizing in Your Budget
dealer will allow on your trade-in. You may also want to check the manufacturer's sug-
gested price and compare it with dealer markups. Test-drive the car and check for comfort
and proper handling. Shop around for the best financing terms. Consider not only dealer
financing but banks, finance companies, and credit unions. Read your purchase contract
carefully before signing. Make sure you understand everything. Check all figures and draw
lines through blank spaces indicating no charge.
Once you have your car, observe proper auto maintenance suggestions to help keep
ownership and operating costs down.
Utilities
Heating and cooling your home probably accounts for most of your residential energy use.
In recent years gas, fuel oil, and electricity bills have demanded a larger share of your
household's income. Learning to effectively manage your household's energy consumption
not only helps to contain costs, but also ensures that these limited resources will be
available in future years.
Why not begin managing your household's energy consumption by taking a personal
energy audit of your house, mobile home, or apartment? If you want an indepth picture of
your energy situation, contact your local utility companies. For a small fee they will us-
ually perform an energy audit of your home. New telephone regulations allow you to
review your telephone use practices and arrange for only the equipment and services that
you use. Consider, for example, whether to buy or rent telephones and which long
distance company would best provide for your needs.
Because utility bills usually vary from month to month, they may be difficult to
budget. Check to see if your utility companies offer an even-payment plan in which you
pay a set monthly fee. Once or twice a year, adjustments are made to your account,
crediting you for overpayments or billing you for additional payments. If you feel this
kind of plan would be helpful, call your utility company for more information.
Children
Planning for the costs of raising children is an important part of a family's overall finan-
cial plan. Each child represents a long-term financial commitment to parents, usually for at
least 18 years. Although a couple's decision to have children will not be based entirely on
the financial aspects of raising them, they should be aware of the associated costs and
decide early in their financial plans how they will meet these costs.
The Cost of Having a Baby
According to a 1982 study', the national average medical cost of having a baby is $2,307.
In addition, average costs are $851 for a baby's layette and furnishings and $235 for a
mother's maternity wardrobe.
Hospital and medical costs are basically set, depending on which physician and
hospital you use, so there is little opportunity to cut costs there. This makes medical in-
surance with maternity benefits extremely important to would-be parents. However, the
baby's layette and furnishings is one area where parents can conserve. Borrowing these
items is a good way to cut costs.
'Study by the Health Insurance Association of America, reported in The
Cost of Having a Baby.

The Principles of Managing Your Finances
The Cost of Child Care
Many children are growing up in households where both parents work outside the home.
For these parents, the cost of child care is an important consideration in the financial plan
of rearing children. The cost of child care averages about 3 percent of family spending.
2
Parental care is the most common child care arrangement followed by care by a relative,
care by a nonrelative, nursery school, and day care centers. Child care costs vary by the
type of care. Care by relatives is the least costly. Day care or nursery school care is more
costly. Remember that there is also a wide variety in the fees that individual schools
charge and in the services they provide for your children. Costs often depend on the type
of care unit you select and the days and hours that your child will need care. Thoroughly
investigate several alternatives before making your decision.
^
Table 3. Current Dollar Estimates of Cost of Raising a Child
1
Born in 1984, at the Moderate Cost
in the Urban Midwest Region
2
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Total
Age
of
child
(years)
Under 1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
1984-2001
Total
Cost of
$ 4,312
4,664
4,561
4,789
5,327
5,593
6,118
6,678
7,012
7,364
8,031
8,431
9,456
10,175
10,685
11,217
12,933
13,581
140,927
Food
at
home
3
raising a child
$
571
736
773
812
979
1,028
1,044
1,352
1,419
1,490
1,863
1,956
2,099
2,449
2,572
2,700
3,174
3,333
30,350
Food
away
from
home
born in
0
0
0
0
$172
181
190
199
209
220
231
242
305
321
337
354
371
390
3,722
Clothing
19846
$
142
149
254
266
279
293
426
448
470
494
518
544
826
867
911
956
1,391
1,461
10,695
Housing
4
$1,876
1,970
1,819
1,910
2,005
2,105
2,095
2,200
2,310
2,425
2,547
2,674
2,911
3,057
3,210
3,370
3,663
3,846
45,993
Medical
care
$278
292
307
322
338
355
373
391
411
432
453
476
500
525
551
578
607
638
7,827
Educa-
tion
0
0
0
0
0
0
$166
174
183
192
202
212
222
234
245
258
270
284
2,642
Transpor-
tation
$
866
910
832
874
918
964
1,012
1.062
1,115
1,171
1,230
1,291
1,456
1,528
1,605
1,685
1,953
2.050
22,522
Level,
Other*
$
578
607
576
605
636
667
812
852
895
940
987
1,036
1,137
1,194
1,254
1,316
1,504
1.579
17,176
'Child in family of husband and wife and no more than 5 children.
2
Formerly the North Central region.
Includes home-produced foods and school lunches.
^Includes shelter, fuel, utilities, household operations, furnishings, and
equipment.
'Includes personal care, recreation, reading, and other miscellaneous
expenditures.
inflated from 1983 constant dollar estimates at annual rate of 5 percent
and rounded to nearest $1.
SOURCE: Updated from Table 8 of Edwards, Carolyn, 1981. USDA Estimates
of The Cost of Raising a Child: A Guide to Their Use and Interpretation.
U.S. Department of Agriculture, Miscellaneous Publication 1411.

Economizing in Your Budget
1.21
The Cost of Raising a Child
The amount that each household will spend to provide a child with food, housing,
clothing, education, and other needs will vary according to how much the household can
afford and what they consider necessary. The U.S. Department of Agriculture has
developed estimates of the cost of raising a child from birth to age 18 for several cost
levels and for each region of the country.
3
Costs are measured for: food at home, food
away from home, clothing, housing, transportation, medical care, education, and all other
items.
The cost per year for raising a child increases as the child ages. Clothing and food ex-
penses account for much of this increase. Housing, transportation, and other costs (such as
recreation and personal items) are shared expenses based on the spending patterns of the
whole family. Medical costs fluctuate and depend largely on the child's health and family
standards. Educational costs (including supplies, lessons, and so on) from elementary
school through high school are basically stable. Table 3 shows the cost per year of raising
a child born in 1984. Table 4 on page 1.22 shows the total costs of raising urban and
rural children.
Based on these estimates, USD A calculates the total cost of raising a child to age 18
to range from $38,027 to $104,532.
2
According to Marsha Freeman Epstein and Cynthia L. Jennings, 1979,
Child Care: Arrangements and Costs, Family Economics Review, Fall
issue, p. 3. Updated to 1983 figures.
3
USDA Estimates of The Cost of Raising a Child: A Guide to Their Use
and Interpretation, U.S. Department of Agriculture, Miscellaneous
Publication 1411.
Table 4. Total Cost of Raising a Child
1
to Age 18
(June 1985 Price Levels)
Region
Economy
Low
Moderate
Urban
Midwest
Northeast
South
West
Rural Nonfarm
Midwest
Northeast
South
West
$47.744
42,315
44,709
48,817
$38,027
42,489
38,765
50,847
$65,130
55,482
61,126
67,520
$55,732
66,720
60,554
72,138
$89,957
94,832
97,889
100,004
$83,847
101,924
98,273
104,532
1
ln family of husband and wife and no more than
5 children.
SOURCE: Updated from Edwards, Carolyn S.
1981. USDA Estimates of The Cost of Raising a
Child: A Guide to Their Use and Interpretation.
U.S. Department of Agriculture, Miscellaneous
Publication 1411.

The Principles of Managing Your Finances
^
1.22
The Cost of Educating a Child
A child's need for education beyond high school is a concern of many parents. Some
parents make financial plans for their children's college or vocational education while the
children are still young. The amount necessary for a child's continued education depends
on:
Type of education chosen (college or vocational).
Type of institution selected (public or private).
Kind of training required.
Length of training needed.
Whether or not the student will live at home.
Personal needs of the student.
Table 5 shows that the estimated cost of 1 year of public education at a 2-year institution
begins at $2,560.
There are several ways to meet these education expenses:
I Set up an educational fund in advance.
i? Take educational expenses from current income as required.
• Borrow funds.
• Have student apply for financial assistance at the educational institution.
• Have student seek employment—many employers offer educational opportunities.
^
Table 5. Estimated Undergraduate Tuition and Fees and Room and Board
Rates In Institutions of Higher Education, 1983-84
Type and control
of institutions
Tuition and
required fees Board
Dormitory
rooms
Total
tuition
and room
and board
All public institutions
Universities
Other 4-year
2-year
All nonpublic institutions
Universities
Other 4-year
2-year
$
870
1,270
1.020
510
4,880
6,140
4,750
3,300
$1,210
1,250
1,180
1,240
1,390
1,610
1,320
1,260
$1 ,080
1,150
1,060
810
1,270
1,560
1,160
1,260
$3,160
3,670
3,260
2,560
7,540
9,310
7,230
5,820
SOURCE: Grant, W. Vance, and Thomas D.
Snyder. 1983. Digest of Education Statistics
1983-1984. U.S. Department of Education,
National Center for Education Statistics.

1.23
.
Selected References
Housing
Food
Board of Governors of the Federal Reserve System, Consumer Advisory Council.
Consumer Handbook on Adjustable Rate Mortgages. 24 pp.
Federal Reserve Bank of Philadelphia, Department of Consumer Affairs. Charting
Mortgages. 1-page pamphlet.
Federal Trade Commission. The Mortgage Money Guide. 16 pp.
U.S. Department of Housing and Urban Development. Fixing Up Your Home.
HUD-52-H(9). 1-page pamplet.
Should You Rent or Buy A Home? HUD-328-H(5). 1-page pamphlet.
Wise Home Buying. HUD-267-H(10). 32 pp.
, Federal Housing Administration. Move in With a Graduated Payment
Mortgage. HUD-H-317(4). 1-page pamplet.
, Office of Administration. Home Buying Members of the Armed Services.
HUD-121-H(5). 1-page pamphlet.
Veterans Administration, Department of Veterans Benefits. To the Home-Buying Veteran.
VA Pamphlet 26-6. 36 pp.
U.S. Department of Agriculture, Agricultural Marketing Service. Let the Grade Be Your
Guide in Buying Food. (Reproduced from the 7952 Yearbook of Agriculture,
pp. 302-317.)
, Food Safety and Inspection Service. Meat and Poultry Hotline FSIS-1.
Talking About Turkey. HG No. 243. 20 pp.
The Safe Food Book—Your Kitchen Guide. HG No. 241. 32 pp.
U.S. Department of Health and Human Services, Public Health Service. Can Your Kitchen
Pass the Food Storage Test? HHS Publication No. (FDA) 74-2052. 6 pp. (Reprinted
from FDA Consumer, March 1974.)
Consumer's Guide to Food Labels. HHS Publication No. 77-2083.
Do Yourself a Flavor. HHS Publication No. (FDA) 84-2192. 4 pp.
(Reprinted from FDA Consumer, April 1984.)
On Being Too Rich, Too Thin, Too Cholesterol Laden. HHS Publication
No. (FDA) 81-1087. (Reprinted from FDA Consumer, July/August 1981.)
Primer on Three Nutrients. HHS Publication No. (FDA) 81-2026. 4 pp.
(Reprinted from FDA Consumer, February 1975.)
Sodium Facts for Older Citizens. HHS Publication No. 83-2169. 12 pp.
What About Nutrients In Fast Foods. HHS Publication No. (FDA) 83-2172.
4 pp. (Reprinted from FDA Consumer, May 1983.)
Transportation
Federal Trade Commission, Bureau of Consumer Protection, Office of Consumer and
Business Education. Used Car Buying: A Checklist. 4 pp.
U.S. Department of Transportation, Federal Highway Administration, Office of Highway
Planning, Highway Statistics Division. Cost of Owning and Operating Automobiles and
Vans, 1984. HHP-41/5-84. 20 pp.

The Principles of Managing Your Finances
^
Utilities
U.S. Department of Energy, Office of Public Affairs. Heating With Wood. DOE/CS-0158.
20pp.
How to Improve the Efficiency of Your Oil-Fired Furnace.
DOE/OPA-0018(l-78). 9 pp.
. How to Understand Your Utility Bill. DOE/PA-0010 (Rev. 2-80). 11 pp.
_ . Insulate Your Water Heater and Save Fuel DOE/OPA-0021(2-78). 1-page
pamphlet.
Insulation. DOE/CS-0192. 11 pp.
. Tips for Energy Savers. DOE/CE-0049. 29 pp.
. Ways To Save Oil Heat. DOE/CS-0176. 5 pp.
U.S. Office of Consumer Affairs. How To Buy a Telephone. 1-page pamphlet. (Published
in cooperation with the Electronic Industries Association).
. Your Keys to Energy Efficiency. 20 pp. (Published with the assistance of
Gulf Oil Corporation).
Children
U.S. Department of Agriculture, Agricultural Research Service, Family Economics
Research Group. USD A Estimates of the Cost of Raising a Child. Misc. Pub.
No. 1411. 57pp.
U.S. Department of Education. Federal Financial Aid. Publication No. E-82-15003. 19 pp.
The Student Guide: Five Federal Financial Aid Programs, 1983-84. 17 pp.
, National Center for Education Statistics. College Costs: Basic Student
Charges, 4-Year Institutions, 1982-83. NCES 83-317. 13 pp.
. College Costs: Basic Student Charges, 2-Year Institutions, 1982-83. NCES
^
83-321. 10 pp.
Where to Go for Help
U.S. Office of Consumer Affairs. How To Choose and Use a Lawyer. 1-page pamphlet.
(Published in cooperation with the American Bar Association)
Current Government Publications
Over 200 free or moderately priced consumer publications are available from the
Consumer Information Center. To obtain a free catalog, write to: Catalog, Pueblo, CO
81009.
The U.S. Government Printing Office sells over 15,000 Federal publications. Many titles
of consumer interest are listed in Subject Bibliography No. 2, Consumer Information. To
obtain a free copy, write to the Superintendent of Documents, Government Printing Office,
Washington, DC 20402.

Worksheets
1.25
Worksheet 1: Net Worth Statement
Assets
(What you own)
First
year
Second
year
Liabilities
(What you owe)
First
year
Second
year
Liquid
Cash
Bank
Checking
Savings
Certificates
Other
Savings bonds
Other bonds
Corporate
Municipal
Utility
Life insurance
Mutual funds
Other
Other assets
Retirement plans
Private pension plan
Profit-sharing plan
Home
Other real estate
Car(s)
Furniture
Large appliances
Antiques and art
Jewelry
Silverware
Stamp or coin
collection
Debts others owe you
Other
Total Assets
Current bills
Charge accounts
Credit cards
Taxes
Installments
Mortgages
Other
Total Liabilities
Net Worth (Total assets minus total liabilities)
First Year:
Second Year:

The Principles of Managing Your Finances
1.26
Worksheet 2: Projecting Goals
Long-Term and Intermediate
Goal
Cost of
goal
Number of
years before
needed
Amount
already
saved
Amount
to save
each year
Amount
to save
each month
2.
3.
4.
5.
6.
7.
8.
9.
10.
Total
Immediate
Cost of
Goal goal
Month money
will be
needed
Amount
already
saved
Amount
to save
each month
Amount
to save
each pay period
1.
2.
3.
4.
5.
7.
8.
9.
10.
Total
*U.S. GOVERNMENT P R I N T I N G OFFICE: 1987-169-017

• . '
Worksheet 3: Estimating Your Income

Worksheets
Worksheet 3: Estimating Your Income
Source
Net salary:*
Household member 1
Household member 2
Household member 3
Household member 4
Social Security payments
Pension payments
Annuity payments
Veterans' benefits
Assistance payments
Unemployment compensation
Allowances
Alimony
Child support
Gifts
Interest
Dividends
Rents from real estate
Other
Monthly Totals
January
February
March
April
May
June
July
August
September
October
November
December
Yearly totals
*Net salary is the amount that comes into the household for spending and saving after taxes, Social Security, and other deductions.

1.29
Worksheet 4:
Expense Estimate and Budget Balancing Sheet,
Fixed Expenses

Worksheets
Worksheet 4: Expense Estimate and Budget Balancing Sheet, Fixed Expenses
Rent
Mortgage
Installments:
Credit card 1
Credit card 2
Credit card 3
Automobile loan
Personal loan
Student loan
Insurance:
Life
Health
Property
Automobile
Disability
Set-asides:
Emergency fund
Major expenses
Goals
Savings and
investments
Allowances
Education:
Tuition
Books
Transportation:
Repairs
Gas and oil
Parking and tolls
Bus and taxi
Recreation
Gifts
Other
Total Fixed Expenses
for Month
January
Amount estimated
Amount spent
Difference
February
Amount estimated
Amount spent
Difference
March
Amount estimated
Amount spent
Difference
April
Amount estimated
Amount spent
Difference
Subtotal
)

1.31
Worksheet 4:
Expense Estimate and Budget Balancing Sheet,
Fixed Expenses

Worksheets
Worksheet 4: Expense Estimate and Budget Balancing Sheet, Fixed Expenses (continued)
Rent
Mortgage
Installments:
Credit card 1
Credit card 2
Credit card 3
Automobile loan
Personal loan
Student loan
Insurance:
Life
Health
Property
Automobile
Disability
Set-asides:
Emergency fund
Major expenses
Goals
Savings and
investments
Allowances
Education:
Tuition
Books
Transportation:
Repairs
Gas and oil
Parking and tolls
Bus and ta$i
Recreation
Gifts
Other
Total Fixed Expenses
for Month
May
Amount estimated
Amount spent
Difference
June
Amount estimated
Amount spent
Difference
July
Amount estimated
Amount spent
Difference
August
Amount estimated
Amount spent
Difference
Subtotal
)

Worksheet 4:
1.33 Expense Estimate and Budget Balancing Sheet,
Fixed Expenses

Worksheets
Worksheet 4: Expense Estimate and Budget Balancing Sheet, Fixed Expenses (continued)
Rent
Mortgage
Installments:
Credit card 1
Credit card 2
Credit card 3
Automobile loan
Personal loan
Student loan
Insurance:
Life
Health
Property
Automobile
Disability
Set-asides:
Emergency fund
Major expenses
Goals
Savings and
investments
Allowances
Education:
Tuition
Books
Transportation:
Repairs
Gas and oil
Parking and tolls
Bus and taxi
Recreation
Gifts
Other
Total Fixed Expenses
for Month
September
Amount estimated
Amount spent
Difference
October
Amount estimated
Amount spent
Difference
November
Amount estimated
Amount spent
Difference
December
Amount estimated
Amount spent
Difference
Subtotal
Total
Fixed Expenses
for Year
)

Worksheet 4:
1.35 Expense Estimate and Budget Balancing Sheet,
Flexible Expenses

Worksheets
Worksheet 4: Expense Estimate and Budget Balancing Sheet, Flexible Expenses
Food
At home
Away from home
Utilities
Gas/fuel
Electricity
Telephone
Water
Household
Maintenance and
supplies
Furnishings
Decorating
Clothing
Household member 1
Household member 2
Household member 3
Household member 4
Health Care
Doctors
Dentist
Other
Medicines and
prescriptions
Personal care
Other:
Total Flexible Expenses
for the Month
January
Amount estimated
Amount spent
Difference
February
Amount estimated
Amount spent
Difference
March
Amount estimated
Amount spent
Difference
April
Amount estimated
Amount spent
Difference
Subtotal
)

Worksheet 4:
Expense Estimate and Budget Balancing Sheet,
Flexible Expenses

Worksheets
Worksheet 4: Expense Estimate and Budget Balancing Sheet, Flexible Expenses (continued)
Food
At home
Away from home
Utilities
Gas/fuel
Electricity
Telephone
Water
Household
Maintenance and
supplies
Furnishings
Decorating
Clothing
Household member 1
Household member 2
Household member 3
Household member 4
Health Care
Doctors
Dentist
Other
Medicines and
prescriptions
Personal care
Other:
Total Flexible Expenses
for the Month
May
Amount estimated
Amount spent
Difference
June
Amount estimated
Amount spent
Difference
July
Amount estimated
Amount spent
Difference
August
Amount estimated
Amount spent
Difference
Subtotal
)

Worksheet 4:
1.39 Expense Estimate and Budget Balancing Sheet,
Flexible Expenses

Worksheets
Worksheet 4: Expense Estimate and Budget Balancing Sheet, Flexible Expenses (continued)
Food:
At home
Away from home
Utilities:
Gas/fuel
Electricity
Telephone
Water
Household:
Maintenance and
supplies
Furnishings
Decorating
Clothing:
Household member 1
Household member 2
Household member 3
Household member 4
Health Care:
Doctors
Dentist
Other
Medicines and
prescriptions
Personal care
Other:
Total Flexible Expenses
for the Month
September
Amount estimated
Amount spent
Difference
October
Amount estimated
Amount spent
Difference
November
Amount estimated
Amount spent
Difference
December
Amount estimated
Amount spent
Difference
Subtotal
Total Flexible
Expenses
for the Year
)

The Principles of Managing Your Finances
Keeping Your Monthly Expense Record
The Monthly Expense Record is provided so you may
record your household expenses as they occur. It is prob-
ably best if one person is assigned to making entries in
your Monthly Expense Record. Photocopy enough sheets
for each month of the year. Here are a few points to
remember when making your entries.
Fill the month and year in the top right-hand corner of
each sheet.
Keep your record book up to date using receipts and
check stubs, when possible, to verify amounts.
Put the day of the month that you paid an expense
under the date column.
Name the purchase or payment under each expense
heading. Be specific, such as the name of the com-
pany you wrote the check to, i.e. "National Bank," or
what the purchase was actually for, i.e. "books for
Tom."
Write the exact amount of that particular expense
under the correct expense heading.
Total amounts under each heading at the end of the
month.
Transfer each total expense figure to worksheet 4 on
pages 1.29-1.39 under "Amount spent" for the correct
month. Subtract what you had estimated in an ex-
pense category from what you actually spent. Record
the difference.
Now transfer each total expense figure to worksheet
6, Total Household Expenses, under the correspond-
ing month.

Worksheet 5:
Monthly Expense Record

Worksheets
Worksheet 5: Monthly Expense Record
Month
Year
Expense Mortgage/ Household Personal Business Other:
Date item Rent operation Utilities Food Clothing Transportation Child care Medical Savings Debts Insurance Education care Recreation Gifts related Taxes, allowances, legal fees
Total

1.43 Worksheet 6: Total Household Expenses

Worksheet 6: Total Household Expenses for 19
Expense item
January
February
March
April
May
June
July
August
September
October
November
December
Total
Mortgage/rent
Household operation
Utilities
Food
Clothing
Transportation
Child care
Medical
Savings
Debts
Insurance
Education
Personal care
Recreation
Gifts
Business related
Other
Total