Every week, Financial Aid will give out easy and quick tips to help college students to better save, invest or spend their money. This week: Keep track of your money.
The first time I lost track of my money was when I obtained my first debit card in 8th grade. I made a string of really small purchases that month: $2 bagel, $1 cookies, $3 drink, $6 sandwich, $1 cookies, $1 cookies (my school sold delicious chocolate chip cookies at three for a $1) – the list went on and on. Since I was only paying small amounts of money, my mind could imagine a total of $10, then $20, then maybe $30. But after awhile, I could only tell that I had spent a lot more than I estimated. Definitely not over $100, but I had no idea how much I had run up my tab. Two weeks later, my bank sent me a postcard saying that I needed to pay overdraft fees because I didn’t have enough money in my bank account. I had not seen that coming. At all.
The first step to saving money is to keep track of it. If we know how we’re spending our discretionary income, we can optimize our decisions, and avoid getting into trouble. First, I’ll show you some benefits to personal accounting; then, I’ll introduce you to a free tool that makes the process easy.
Benefits to keeping track of money
1. Knowing exactly how much you spend
Maybe it’s eating out, shopping for clothes, or buying comics. Whatever it is, you know what you spend most of your money on. What we don’t know however, is exactly how much we actually spend.
Buying $7 – $10 meals seems like a smaller ticket each time, but the numbers add up. If you keep track of your purchases, instead of thinking “I probably eat out too much,” you’ll know that “I spent $250 every month on eating out.” Only after you know that $250 figure can you decide if eating out is actually worth that much to you.
Actually keeping track is easy if you’re willing to give up some personal information (see below), but the old fashioned way works too. Your checkbook comes with a handy notebook to log purchases and withdrawals. Just be diligent to log every purchase for a month, and you should start to see trends. More spreadsheet-savvy readers can feel free to collect receipts from purchases and log all your expenses in Excel.
2. You can budget appropriately
Now, I don’t expect any college student to create an intense budget, allocating every penny they make into categories. We simply don’t have the time. Instead, budget loosely. Pick all the things you like to do, and budget how many times you can do those activities.
For example, if you enjoy eating out much more than watching movies, you can budget eating out as a once per week activity, and movie-watching as a once per month activity. When you figure this out, write it down. We all subconsciously budget when we feel guilty for doing something too frequently, but it rarely stops us from acting. If you give yourself allotments and write them down, it can help with your follow-through, and save you money.
3. Use your money to buy what you actually want instead
So you’ve already determined your loose budget, and you’re letting yourself eat out twice per week. But you’ve been itching to buy Fallout: New Vegas ever since it came out. Amazon can get it to you for $48, but you haven’t been able to justify spending that money. Now is when we look at what you currently spend your money on.
Let’s say your bi-weekly discretionary income is $200, and you discover you buy Chipotle twice per week, which costs you st best $6 per trip. So you’re spending $12 per week, $24 every two weeks and $48 per month on Chipotle. Delicious, I know, but let me ask you this. Would you be willing to give up 8 trips to Chipotle for Fallout? If so, you know what to do.
This is what economists call opportunity cost. That $48 you spend at Chipotle is only worth as much as the next best thing you could buy with $48. For some of you, it may be that simply not spending the $48 every month is actually worth more to you than the burritos. If that’s the case, open a savings account and earn interest! In the end, do with the money what you value most.
Making accounting easy
If you use a debit or credit card for most of your purchases, then Mint.com has made keeping track of your money extremely easy. After you surrender to Mint your bank and credit card information, it pulls every transaction you’ve ever made into your account. This includes withdrawals and deposits into your checking account, as well as every charge made on your debit and credit cards. Scary, I know, but many organizations have reviewed the site, such as the New York Times, and it’s not a scam to obtain your personal information.
Mint will automatically categorize your purchases for you (“Groceries,” “Textbooks,” “Rent”, “Fast Food”) and if it makes a mistake, you can correct it. Then, the website creates a pie chart that shows you where your money is going. If you really get into it, you can set actual budget limits on your spending in each category. The site even recommends to you credit cards that have the best rewards, based on your spending habits.
Now that you know what to do, set aside some time to follow these steps. I guarantee that if you don’t multitask, this whole process will take you less than 20 minutes. And if we think about this economically, you’re paying 20 minutes in exchange for saving probably more than $20 of your hard-earned money.
What financial issues do you want to see us write about? What confuses and baffles you? Financial Aid is currently taking reader suggestions for future topics! Comment below to let us know what’s on your mind.