Introduction
Most money problems result from spending more than is available. It’s that simple, even though we often do everything we can to make the problem much more complicated. The solution also is simple: Don’t spend more than you have. If you are spending more than you have, then increase your income, decrease your spending, or do both. This idea has never won a Nobel Prize in Economics, but you won’t go broke applying it.
If the economy tanks, we can benefit by telling the truth about it. We can also tell the truth about ourselves. It’s one thing to condemn the dishonesty of mortgage bankers and hedge-fund managers. It’s another thing to have an unpaid balance on a credit card or wipe out a savings account and still believe that we are in charge of our money.
The first step to changing such behaviors is simply to admit that they don’t work. Then, make a plan and stick to it.
Identifying Income and Expenses
Keep financial news in perspective. Yes, times aren’t always good, and recessions are hard on people. At the same time, reporters tend to center the conversation on gloom and doom. Turn it around. If the official unemployment rate is 8 percent, for example, this means that 92 percent of people in the work force are employed. Our economy will continue to reward people who apply their skills to create valuable new products and services.
When times get tough, some people are tempted to reduce stress with unhealthy behaviors like smoking, drinking, and overeating. Find better ways to cope. Exercise, meditation, sound sleep, and social support can do wonders.
Another way to manage stress is to limit how much attention you pay to fear-based articles and programs. Avoid conversations that focus on problems. Instead, talk about solutions. Focus on what you can control, and forget about the rest. Even if the economy takes a nosedive, there is always at least one more thing you can do to manage stress and get on a firmer financial footing.
The first step is to determine exactly what it costs you to go to school.
Fill in the blanks in the following chart, using totals for a semester, quarter, or whatever term system your school uses.
Note: Include only the costs directly related to going to school. For example, under “Transportation,” list only the amount that you pay for gas to drive back and forth to school—not the total amount you spend on gas for a semester.
Identifying the Costs of Taking One Class
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Category
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Cost
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Tuition
|
$________
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Books
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$________
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Fees
|
$________
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Transportation
|
$________
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Clothing
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$________ |
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Food
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$________ |
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Housing
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$________ |
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Entertainment
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$________ |
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Other expenses
(such as insurance, medical, and child care costs)
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$________ |
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Subtotal
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$________ |
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Salary you could earn per term if you weren’t in school
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$________ |
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Total (A)
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$________ |
Now figure out how many classes you attend in one term. This is the number of your scheduled class periods per week multiplied by the number of weeks in your school term. Put that figure below:
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Total (B)
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$________
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Divide the Total (B) into the Total (A), and put that
amount here:
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$________ |
This amount is what it costs you to go to one class at one time.
What is your response to discovering this figure? What might you do differently as a result of knowing the hourly cost of your education?
Tracking Income and Expenses
Many of us find it easy to lose track of money. It likes to escape when no one is looking. And usually, no one is looking. That’s why the simple act of noticing the details about money can be so useful.
One goal you should have when you are creating a financial plan is to discover how money flows into and out of your life. You record all the money you receive and spend over the course of one month. This sounds like a big task, but it’s simpler than you might think. Besides, there’s a big payoff for this action. With increased awareness of income and expenses, you can make choices about money that will change your life. Here’s how to begin.
Track your income and expenses. Use your creativity to figure out how you want to carry out this step. The goal is to create a record of exactly how much you earn and spend each month.
Use any method that works for you. And keep it simple. Following are some options:
- Carry 3 × 5 cards in your pocket, purse, backpack, or briefcase. Every time you buy something or get paid, record a few details on a card. List the date. Add a description of what you bought or what you got paid. Note whether the item is a source of income (money coming in) or an expense (money going out). Be sure to use a separate card for each item. This makes it easier to sort your cards into categories at the end of the month and fill out your Money Monitor or Money Plan.
- Save all receipts and file them. This method does not require you to carry any 3 × 5 cards, but it does require that you faithfully hang on to every receipt and record of payment. Every time you buy something, ask for a receipt and then stick it in your wallet, purse, or pocket. When you get home, make notes about the purchase on the receipt. File the receipts in a folder labeled with the current month and year (for example, January 2018). Every time you get a paycheck during that month, save the stub and add it to the folder. If you do not get a receipt or record of payment, whip out a 3 × 5 card and create one of your own. Detailed receipts will help you later on when you file taxes, categorize expenses (such as food and entertainment), and check your purchases against credit card statements.
- Use personal finance software. Learn to use personal finance software (Quicken, for example) that allows you to record income and expenses on your computer and to sort them into categories. Also check out money management apps for your smart phone.
- Use online banking services. If you have a checking account that offers online services, take advantage of the records that the bank is already keeping for you. Every time you write a check, use a debit card, or make a deposit, the transaction will show up online. You can use a computer to log in to your account and view these transactions at any time. If you’re unclear about how to use online banking, go in to your bank and ask for help.
Experiment with several of the options mentioned. Settle into one method that feels most comfortable to you, or create a method of your own. Anything will work, as long as you end each month with an exact and accurate record of your income and expenses.
Increasing Income
Increasing your income is definitely a way to build wealth and improve your financial situation. The following are some suggestions for increasing your income:
- Focus on your education. Your most important assets are not your bank accounts, your car, or your house but your skills. Once you graduate and land a job in your chosen field, continue your education. Look for ways to gain additional skills or certifications that lead to higher earnings and more fulfilling work assignments.
- Consider financial aid. Student grants and loans can play a major role in your college success by freeing you up from having to work full-time or even part-time. Visit the financial aid office at your school to discover your options.
- Work while you’re in school. You can use any job to gain experience, establish references, interact with a variety of people, and make contact with people who might hire you in the future.
- Do your best at every job. Excel as an employee. Suggest and implement ways to help your employer increase its income and decrease its expenses. A positive work experience can pay off for years by leading to other jobs, recommendations, and contacts.
For many people, finding a way to increase income is the most appealing way to fix a money problem. This approach has a potential problem: When their income increases, many people continue to spend more than they make. This means that money problems persist even at higher incomes. To avoid this problem, manage your expenses—no matter how much money you make.
Keep monitoring your income and expenses to discover the main drains on your finances. Then focus on one or two areas where you can reduce spending, increase income, or both.
