Budgeting For Beginners
It is a well know fact that we've reached an all-time world-class new record in the amount of personal debt carried by US citizens. This can be illustrated by the National Debt Clocks and Savings Clocks. Students are not exempt from this and in some respects are in greatest need of help.
Many of us have managed to wade further than we should have into the financial swamp. How well we'll be able to find our way back out to dry ground will depend on our knowing just where the heck we are in the first place. And that takes us right to the "B" word.
Budgeting
If budget management, fiscal discipline & managing for results is something that the folks at the Whitehouse can’t get enough of, surely its something we should all be getting in on. Unless you happen to be an economics major, budgets may be something alien to you. For those of us who are fiscally challenged and would prefer to place our faith entirely in the benevolence of the Saints of the Oblivious Shopper, even the mention of the word ‘budgets’ is enough often to drive us to the emotional security of watching the latest TV reality shows.
I really hate to be the one to break the news to you, but investing in an ever expanding CD, DVD or Video Games collections at a rate that is dictated only by the speed at which you run out of whatever money you think you have in your current account is not a prudent course of action. Worse still is using a credit card to amass a collection that would impress Steven Spielberg.
How to draft a budget
While you may chose to vary your technique as you become accustomed to monitoring your finances, I suggest that you begin by getting a simple spiral binder, pick a page and draw in a bunch of columns. Start with around five pages to begin with and you can add more if required.
In the first column, write down the names of your expenses. You know, like food, house payment or rent, gas, car payment, electricity, phone, child care, credit cards - that kind of stuff. Put one expense name on each line as you go down the column. Don't forget the clothes, entertainment and insurance entries. Even if you pay your insurance quarterly or semi-annually, you need to break this down into a monthly "expense" so you can save for it or at least see where you stand. If you'd like, it's not a bad idea to list the expenses in payday groups. List the bills you'll need to pay from the first pay day of the month in one section of the column and create a separate group for the bills that should get your attention on the second payday. Whatever works best for you.
In the second column, write down how much you normally spend each month for each of the expense entries in the first column. If you're not sure, take your best guess and write it in pencil. You can always make adjustments later.
At the top of the remaining columns, write in the names of the months that are coming up. You'll use these columns to record your actual payments as you make them.
Now do the math, add up your estimated expenses and compare the total to your projected monthly income. If what's going out is more than what's coming in, you know right from the get-go that you'll need to make some adjustments. If the figures show that you should have money left over at the end of the month but it never seems to work out that way, there are obviously some expenses you've forgotten about - or maybe weren't really aware of in the first place. How about maintenance on the house or car? Medical expenses? Travel Expenses? Takeaways and restaurants?
Stay on top of your finances by keeping them in the spiral binder on your current budget page. That way you'll always know exactly where they are. When you pay them, be sure to remember to write down the amount in the appropriate column.
Debit cards are great but they can quickly cause problems if we're not careful. If you like to make purchases with a debit card, be sure to tuck the receipt in your wallet and then remember to write the amount in your check book as soon as you get home. Then either write that amount in the appropriate column in your budget or simply toss it in the spiral binder for entry later. If you normally make several trips to the grocery store in a month, just paper clip the receipts together and enter the totals into your "ledger" a couple times a month. Weekly if you wish. If you like to pay your bills on-line, remember to enter the amount in both your check book and ledger.
All-in-one stores - those that carry groceries and a variety of other items - tend to complicate the budgeting process because we really should separate the purchases so we can see where we're spending our money. Make it easy on yourself. If your basket is filled mostly with groceries and the "other item" purchases are small, just enter everything in the food column. If you normally purchase a significant quantity of "other stuff" along with the groceries, you should think about either separating the expenses yourself or having them rung up separately as you check out. Or maybe a separate trip through the store would work better for you.
Credit card payments. If at all possible, pay more than the minimum amount. Minimum payments are calculated in such a way that typically ensures that you will keep paying the credit card company for ever! Consider finding one that offers a 0% on balance transfers bonus – I recently moved my own to the RBS Credit Card that offered 0% on balance transfers but others such as the Natwest Credit Card have similar offers. Other cards such as the American Express Card offer other benefits that that may be able to contra against other expences. The Motley Fool offer a great service that allows you to Compare Credit Cards.
Loans – as a student, getting into debt is unavoidable. As such I recommend that you do as much research as possible before taking out or transferring a loan. Beat That Quote is a good place to compare loans. RBS loans appear to offer good value at this time, particularly for those who already have one of their current accounts.
The bottom line - By using the spiral binder budgeting technique, you'll be able to quickly get a better grasp on where your money is going - and you'll be able to see at a glance where you stand at any time during the month. Hopefully, you'll be able to also set aside some coins not only for emergencies but also for the more fun things like vacations. And if you're not doing it already, work toward being able to slide a portion of your earnings into a long-term savings account. By paying off the old credit cards, you're already taking major steps in that direction but as soon as possible, establish a real savings account where you can earn at least a little interest on your money. Consider having this direct deposited into the account from the amount you earn at your job. If you don't see it, you won't miss it as much.
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