Editorial Policy

When gas prices drop, budget for cash boost

Erica Sandberg

March 27, 2015

QHi Erica,

I have what you would call a good problem. My family's gas bill has dropped by about $200 a month over the past few months, and we don't know what to do with the money! At first, we paid off some credit cards. But now, that's done. We're always pinching pennies, and it's nice to finally have a little cushion (last month we were able to go out to dinner!), but my husband says he feels like we should be setting it aside for emergencies. What do we do? –Pamela

ADear Pamela,

Yes, indeed, that's a nice problem to have!

Or is it? You and your husband sport different ideas about how to treat assets, and that can lead to just as many arguments as opposing strategies to debt repayment. The good news, however, is that you are both right.

Some Americans are just one or two paychecks away from homelessness, so the more cash you have saved, the further away you are from that kind of disaster. A nest egg sufficient to meet your necessary expenses for at least a few months should give you comfort. But spending it on the things you love, not just need, also inspires good feelings.Ask Erica

I could suggest you split the extra funds down the middle. If your husband wants to squirrel away every last penny of his $100, that is his prerogative. Conversely, if you want to blow all of your half on dining out and entertainment, go for it.

Then again, I can't imagine that financial security isn't important to you, nor do I really believe that your husband wouldn't enjoy the occasional night on the town. So, here's an easy way to ensure you both will reap the benefit of economic safety and material pleasures.

It's time to develop a spending plan together. Unlike a bare bones budget where you have to pare spending down until you can afford the vitals, a spending plan is far more flexible and fun to create.

  1. Write down your monthly net income. Let's say it's $3,000.
  2. Calculate 10 percent of that number, so, in this example, $300. That's what you would need to set aside for emergencies, so open a savings account and have that amount automatically deducted from one of your checking accounts.
  3. Now you have $2,700. List necessary expenses, such as housing costs, utilities, medical expenses, groceries and transportation. Make sure you average the bills that are higher in the winter and summer, such as natural gas and electricity, so you don't come up short. If the total is $2,500, you have $200 left over.
  4. List discretionary expenses, such as clothes, holiday gifts and entertainment. Discuss and prioritize. You have $200 to spend. The aim is to meet those that are most important to each of you while coming out at least even.
  5. Back to your emergency account: Stick with the monthly $300 deposit and in a year you'll have amassed a decent nest egg — $3,600. Keep it up until you've accumulated enough to cover all of your necessary expenses for a few months, in case of sudden unemployment. In my example, that would be $7,500 for three months.

And, you're done. You both will know how much it takes to maintain your household, and a cushion will be in place in case of job loss (or unanticipated large expenses such as a costly home repair project). Pleasure is built in, too. Even better, when you've saved enough for you to both feel safe, you can loosen the purse strings a bit more and splurge on something really grand.  A lobster feast for two, perhaps?

Got a question for Erica? Send her an email.