Knowing how to manage your finances is an important skill. Here are some basics.
1. Determine Needs (vs. Wants)
The first thing you need to do is distinguish between needs and wants. A suggestion would be to begin by listing the last 10 items you spent money on or purchased during the past week. (e.g., clothing, food, rent, gas, shoes, and CDs). Some may find it even more helpful to keep a diary/journal of what was bought in a whole month. Then, check whether the purchase reflects something you needed versus something you simply wanted (and could have lived without). You may also want to note where you bought it and how much it was, also. Once you have completed it, review your list and HONESTLY answer the following questions:
Did you buy more things that you wanted or that you needed?
Did you spend more money on things that you wanted or that you needed?
Did you think that you are more likely to spend money on needs or wants? Why?
Where did you tend to purchase items on your list? Could you have gone to less expensive stores to buy those items?
Did you take time to consider whether you really needed these purchases beforehand, or did you buy on impulse?
Did you buy any of the items because you were with others who also were buying them?
How much of your spending was a function of "retail therapy?"
Once you have completed this, you can make a "monthly needs list." Be sure to include all items that are essential for you to purchase each month. (Remember: Monthly needs typically don’t include vacationing in Aspen!)
2. Determine Available Resources
The next step is to make sure that you don't run out of money! Knowing how much you have to spend is a key factor in being able to manage your spending. Estimate your total available monthly income (wages and tips, savings, financial aid, support from parents, and other sources of income). If you get some of your money in larger lump sums, divide the lump-sum amount by the number of months over which you have to make it stretch.
3. Determine Spending Habits
Once you know how much you have for spending, you need to estimate how much you spend on average each month for each of the expense categories. You will use these estimates in order to determine your monthly budget. (For accurate estimates, you may need to go back and check your bill statements and receipts. This will be easier if you kept a spending diary/journal for a month as was suggested above.)
Total up your monthly expenses and subtract them from your total monthly income.
Suggestion: Keep track of your budget on an ongoing basis. You may want to try a software tool such as Quicken to enable you to track your expenses as well as easily balance your checkbook - important skills while you are in school and beyond.
4. Making Ends Meet
Now, you should be able to see how much money you spend each month and where you spend it. If your expenses are more than your income, you need to go through your list of expenses and decide where you think you are spending too much. Make a list of what expenditures you think you can or need to trim, and use money-saving strategies. Then, you must adjust your budget accordingly.
Information based on USA Funds® Life Skills®. © 2002 United Student Aid Funds, Inc. Used with permission