I think it is about time that I gave you guys a basic rundown of how I do my own personal finances. I’ve talked about elements of it but haven’t really given the big picture yet. In this series, “One Budget to Rule Them All,” I’m going to be explaining some of the budgeting concepts and methods I’ve come to believe are best suitable for helping college students handle their money. Now this system has evolved over my college years from personal experience and I’m still learning, so if you see anywhere that I can improve let me know.
I could probably write an entire post about each of the posts below (and eventually will), but to start off the series, here is an overview of some basic beliefs I’ve picked up about budgeting:
1. Tracking expenses is a waste of time.
Most personal finance sites will tell you that the first step to creating a budget is to write down every single purchase you make to see where your money goes. I’m telling you this is crap. It is too tedious and I believe it is one of the top reasons why people quit budgeting – they get too caught up in the details.
The reason they tell you this is so that you can see where your money is going. Now this might be necessary for people out in the “real world,” especially those just getting ahold of their personal finances, because they have more expenses and a wider variety of them, but for college students it’s pretty simple.
Our immediate expenditures (those that we will be spending money on in the near future and doing so frequently) are made up of food and stupid stuff (to find out more about these, especially stupid stuff, click here). Basically, anything you are going to spend can be lumped into one of these two categories. Now you might ask, “Surely you must spend things outside of that,” to which I reply, “Keep reading… and don’t call me Shirley.”
Looks like I picked the wrong week to stop reading Coinege!
2. A fund for everything.
If you aren’t immediately spending money on something, it should be actively going towards some expected or unexpected item in the future. Every dollar I get is named. That is to say I’m putting it towards something.
Funds can be something as specific as “Two Peavey PV-115 Speakers,” which sound awesome by the way, or as vague as “The Guys,” which I dig into when I’m hanging out with my bros and want to spend more than my allotted stupid stuff money. They can have a specific saving goal or be never-ending. They can be numerous or few. They can be whatever your heart desires, just as long as every dollar you make is assigned to one of them.
Just as a side note, two funds that I highly recommend you have are one for Treasure and one for Giving. For me, these accounts are never-ending in their amounts and each one receives 10% of my income.
3. College is a pretty unique environment.
School provides me with a dorm and a meal plan. Those are two major expenses that I don’t have to worry about out of pocket at least on a day to day basis (although I will have to worry about them eventually when I start paying off my student loans).
It makes me comfortable knowing that if I absolutely hit rock bottom and go broke, I at least have a place to sleep at night and three square meals a day. The basics for survival are covered. It’s almost like a safety net, which makes learning personal finance skills in college all the more attractive. You have room to comfortably make mistakes.
4. Using cash is the best way to limit your spending.
At the beginning of every month I withdraw money for food and stupid stuff. Currently this amount is $30 for each. I happen to have a nifty wallet with two pockets for bills so I am easily able to keep these separated. This way I never have to wonder how much money I have left for each of these things. I just have to look in each wallet pocket and count.
When I run out of money in my wallet I am out of money for the month. Period (this is with the exception of funds; see belief number two if you skipped it). Being able to visually see how much money I have left and actually having to pull that money out of my wallet and count it out to pay for something really makes me think twice about what I am spending it on. This is an especially helpful tip if you are prone to impulse buys.
5. If you have money, spend it.
Now this is not to say that you should keep your bank account riding at zero. It is saying that if you have the money to buy something, don’t feel guilty about buying it. Having the money to buy something means you have properly saved for that thing, and thus should view the purchase as a reward for your discipline.
This belief is just as useful for not spending money as well. It is just as powerful to say the opposite – if you don’t have money, don’t spend it. For me this is just common sense. It is also why I am against credit cards. If you find yourself in a given situation where you don’t have enough money to buy something then why are you buying it? Save for everything you need.
Do you agree with my beliefs? Why or why not? Also, do you have any major personal beliefs about your own finances? Leave it in the comments!