News Article
For: Release week of
To: Rotating News Article
By: Linda K. Bowman, Ext. Agt. IV - Family
& Consumer Sciences
Telephone: 850/623-3868 or 939-1259,
ext. 1360
Keep Your Overhead Low
Years ago, a department store had a jingle that featured the
repeated chorus of "low overhead, low overhead." They claimed to offer lower prices because
they kept their “overhead” down. If they
spent less on rent and other fixed expenses, they could make a reasonable
profit at a lower price.
And the same idea applies to our family finances. The lower your “overhead” is the more likely
that you'll avoid financial troubles. Let's see how this works.
First, what is “overhead”? In the retail store, it would be the cost of
rent, lights, insurance and payroll; everything it takes to open the store to
the public. Your family overhead is made
up of all the money that you've committed to spending before the month begins.
We'll visit the Smith family for an illustration. How your family compares isn't important, just
grasp the concept involved. In fact, you
might want to jot down your own expenses to see what your “overhead” figure is.
The Smiths have a 30-year, 6 percent mortgage for $150,000 requiring
a payment of $899 per month to cover principal and interest. Like all homeowners, they'll need to pay
property taxes and insurance. The
combined expense adds another $2,400 each year, or $200 per month.
Naturally, the Smiths will need utilities. Some months are worse for heating and air
conditioning, but the average is $300 each month.
If we total that up, the Smiths have committed to spending
$1,399 each month to keep a roof over their heads. Remember, that's not including maintenance,
repairs or upgrades. We're just trying
to identify how much they've committed to before the month begins.
Next let's look at transportation. Like so many of us, the Smiths own two cars. Fortunately, they only have one car payment. Their minivan will cost them $453 for 48
months. Insurance and registration for
both vehicles totals $1,600 a year or another $133 per month. So the cost of owning the two cars is $586 per
month. Again, we haven't included the
cost of gasoline or repairs.
The Smiths also have some credit card debt. They're carrying $8,000 at 14 percent interest
which costs them $93 each month in interest expense.
Despite more than one attempt to quit, Mr. Smith still smokes
cigarettes. Not a heavy smoker, but he
still goes through a carton every two weeks. Add another $48 a month to the “overhead”
column.
Mrs. Smith does her part, too. Each Friday for years she's been going out for
lunch with some long-time friends. Usually they pick a moderately priced
restaurant, but it still averages $9 per week by the time her portion of the
tip is included, so add another $36 to our “overhead.”
So how much are the Smiths committed to spending before the
month even begins? Their total overhead
is $2,162.
Next, let's see how that affects their finances. First, we'll look at how much income it takes
to cover the overhead.
The Smiths are in the 27 percent tax bracket. They also pay 7.65 percent in Social Security
taxes. Fortunately, where they live
there's no state or local income tax. To
cover the $2,162 in monthly overhead, they need to earn $3,308 each month. Or
$39,700 each year.
Look at it another way. The Smiths combined income last year was
$76,500. So of every dollar they make 52
cents goes to cover expenses that they have very little control over.
The question to ask before making any ongoing commitment is, “do
I want to add this monthly expense to my overhead?” Is it really more important than all the other
things I'd like to spend money on?
Not only was "low overhead" a memorable jingle;
it's also a good way to look at your family finances.
For more information or if
you have a question, call
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in this article is solely for the purpose of providing specific
information. It is not a guarantee,
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