Disclaimer: I’m not a financial adviser. If anything, I hate math and I’m not a rich person. However, I do handle our household finances quite well and think it simply takes common sense to manage your basic household finances. What I’m about to discuss below is geared mainly to students to make some type of sense of their first paychecks so that it’s worth while in the long run.
I know a lot of students get really excited when they first get a job that they end up spending their first check before its even earned. Right now, with the way the economy is, budgeting should be every one’s priority. Below are a few simple steps to help you make sense of it all which I hope would make even Suze Orman proud!
First, to better understand where your money is going, make a list of all your expenses. For example, what are you paying a month for:
– school expenses (books, equipment, student loans)
– credit card payments
– transportation (car payment, gas, bus fare, etc)
If your expenses exceed your monthly income, know that you have a problem. If you have more wants then necessities on your list, you have an even bigger problem. There are ways to decrease or even eliminate some of those excessive wants from your expense list. Ask yourself, do you really watch 500 channels? Must you eat lunch out every single day? Do you seriously have to keep every light in your home on? Does it hurt to make your own coffee at home versus a $6 cup from Starbucks?
Making a few adjustments can go along way. You’d be surprised how much money you could save a year. Just do the math. You can save up to $420 by getting just a basic cable package (if not eliminating cable all together now that many channels are free with the new national digital upgrade). You can save up to $200 a year by making lunch at home at least 3 times a week. You can save up to $250 a year off the electric utility bill by using energy efficient light bulbs and just turning off unnecessary lights. You can save over $360 a year making your own coffee at home before you head out for your day.
Speaking of saving, do you have a rainy day fund? Once you know how much you need a month for your expenses, you should start putting a certain amount in savings a month. Your goal should be to have at the least up to 3 months of expenses saved in a rainy day fund. The more the better but don’t go beyond your means. The point of such funds is to protect you should you hit a financial stumble along the way. Remember, you’re a student with more expenses to come along the way in an unstable economy. The more prepared you are, the more protected you are.
Think about this: San Francisco, where I live, created a rainy day fund about a few years ago. When the state of California issued pink slips to about 500 teachers in San Francisco alone, the rainy day fund helped save about 400 of those jobs. That’s how important such a fund is.
To better budget and manage your personal finances, you need to take a few moments to put everything in perspective and check out a few helpful tools. You can put your expenses list in a spread sheet to include your monthly income, expenses and savings. Many online banking give you the option to download your statements into a spread sheet as well as other tools. There are other tools and websites such as moneyStrands, Wasabe, or Mint.