Monday, February 4, 2013

Money Smarts: Budgeting

One of the things I enjoy about working as a Student Leader in the Southwestern Advantage Program is that I get help college students save more money in a summer than they ever thought was possible. Seriously, how many college students SAVE over $5,000 in a summer? Even if a student were to make that much in a different internship, it's common to end up spending most of it by the time the fall semester gets rolling.

Unfortunately, many students have never been taught how to handle that money in a smart way. Very few high schools teach money management, and a lot of parents never cover these topics with their kids either. So, the celebratory spending begins in August and ends when the money is gone. Granted, it can be fun to spend money this way, but it certainly is ineffective for building any kind of long-term wealth (which, thanks to the rule of 72, is incredibly easy to do if you start at 19 - 22 years old).

Good news: you can start being smart with your money at any time. You don’t have to wait for a new year or a new semester to begin making good financial decisions. So for those of you who can’t seem to figure out why you never know where your money is, this post is for you.

Lets start simple: you have to budget. I know, I know, budget is a dirty word to a lot of us. It implies responsibility and discipline. Didn’t you work hard all summer in a responsible and disciplined way so you could be irresponsible and reckless with money during the school year? NO. These success principles guarantee success not just during the summer, but all the time.

I think the real reason people don’t like the idea of budgeting is because it often connotes a level of asceticism that seems quite restricting. Budgeting doesn’t have to be restrictive though. A budget can be whatever you want it to be. Being on a budget is simply setting goals for your money. Sometimes you hit those goals, and sometimes you don’t. But you at least know where you’re aiming. So let’s start simple. Here are some basic steps to get you started on a healthy budget:

Track your spending 
Believe it or not, most people in America have no idea how much money they actually have at any given time. So first, figure out how much you're working with. Next, start recording your purchases at the time you make them. Grab your phone and snap a pic of your receipt. Email yourself the amount of your purchase; edit your budget once you're back home. If you don’t think you can handle that, at least check your online statement once a week. Keep track of how much you have left to spend, and know what you have available before you swipe your card.

Determine how long that money needs to last you 
Traditional budgeting has you determining income and outflow for a month at a time. This is often effective since a lot of bills are paid monthly. However, it’s okay to get creative. I like to do a tiered budget, where I have my monthly expenses that I plan for first (rent, utilities, cell phone, internet, etc), and then a weekly level where I plan out my more variable expenses (gas, food, household items, entertainment, etc). This gives me more flexibility in handling unexpected expenses.

Set your priorities 
Figure out what must be paid first and go from there. Some people recommend giving first, others recommend saving first. Whichever you choose, you want to make sure you have your basics, such as food, shelter, and gas, covered next. Finally you can add to the less essential items however you see fit.

Assign an exact dollar value to each category 
You should know exactly how much you can spend on any given item for that time period. All of these dollar values should exactly equal how much money you have available for that month, week, fortnight, or your timeframe of preference. This is called a zero-sum budget. Any unspent money should either be assigned to savings, giving, or an expenditure category.

Be Disciplined (Know when to say 'No')
This one is the hardest of all, but if you told yourself you would only spend $25 on entertainment, and your friends want to go see a new movie in I-Max 3D that will put you over budget, don’t go. Suggest something less expensive that keeps you within the budget you set for yourself.

It’s not easy to be on a good budget, but if you stick to it and are intentional about how you spend your money, you will be both wealthier and happier in the long-run. Having money is not the most important thing in life, or will it ever make us better than our friends or neighbors. But being disciplined with a budget allows for more opportunities, choices, and freedoms than trying to make ends meet ever will. 

Jaselyn Taubel

Corporate Recruiter at Southwestern Advantage

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