3.2.1 Jenny’s options (Stage 2: decide on a financial plan)

What are Jenny’s options?

1. Do nothing and hope things get better. Things may get better (an unexpected Lotto win?), but they may also get worse (an unexpected car repair bill?). Unexpected bills are a common reason why people go into debt.
2. Increase income. This could be done by working overtime or by taking a second job.
3. Reduce total spending and change the pattern of expenditure.

Let’s assume that Jenny has rejected the first approach, and that the second is not realistic for her at the moment. This leaves the third option – reducing total expenditure and changing her pattern of expenditure.

Although reducing her total expenditure is all that is necessary to achieve Jenny’s goal of lessening the gap between income and expenditure, in practice this will involve changing her pattern of expenditure too. This is because there are some forms of spending that are difficult to reduce and so others will have to take a more than proportionate cut. It’s also very hard to carry out a plan simply to reduce total expenditure – where and in what way the cuts are to fall has to be decided.

Figure 5

The first step in deciding where to make such cuts involves thinking about what constitutes essential and non-essential expenditure. Spending on food and housing would be defined as essential, but other items are less defined. These comparisons can make the distinction between what is essential and non-essential more difficult.

In the mid to late 1990s only a minority of UK households owned mobile phones and had access to the internet – yet most people now have access to these technologies. Are these essential items? Many people would argue that to participate fully in contemporary society they are. Although not essential for physical survival, not having these items can make someone feel excluded from society. If everyone else is communicating by mobile phone, for example, this creates pressure to own one.

Look at the goods and services you spend money on. Which do you consider to be essential?

How do you decide whether or not something is essential? You’ll have your own answers to this question, but your thinking will probably be affected by your income and social class. The sociologist Pierre Bourdieu pointed out that the size of a person’s income or being in a particular social class may affect the distinction between what is seen as essential and non-essential (Bourdieu, 1977).

Where particular goods or services are seen as essential, expenditure on them can’t be cut out completely. In this instance, budgeting is more about reducing the costs of these and other items, for example, by buying fewer of them, or a cheaper version. Part of this process usually involves careful ‘shopping around’, searching and comparing prices – a process made easier in recent years by the emergence of price comparison sites on the internet.

Now you take a look at some of the social and behavioural factors that influence spending. We’re going to come back to Jenny and how she resolves her budget problems later this week.