Thursday, March 22, 2007

Basic Young Adults Guide to Managing Money

This is a very basic approach. Later posts will cover this area more indepth.

By the time one reaches early adulthood they should now have the basic understanding of what money is, how money is used, and how the basic economic system works. There is no real formal instruction on managing one’s personal finances, these ideals and hopefully good money managing habits were learned through the years by following and/or listening to parents good advice and practices. Many financial habits are just learned through trial and error. It don’t take but one or two late fees or that bounced check fee to make one realize, I ain’t going to let that happen again.

Nearly every person has had to learn how to take care of their own money. There are the exceptions like the already wealthy that lives a world where money doesn't matter. But for the rest of us who are not as fortunate, we all need to learn, follow and become financially self sufficient.

The important factor in establishing a solid financial base is to live within the income you have. Whether you make $10,000 or $40,000 dollars, a year does not matter. How you manage your money to sustain yourself within your income level is what matters.

You take your weekly or monthly income and subtract all your monthly expenses allowing for unexpected and “oh, I forgot about that bill”. See the example below:

For simplicity, figures will be calculated monthly. Figures are for demonstration only.

January Monthly income ~~~~~~ $3000.00
January Monthly expenses ~~~~ - $2000.00
January Left over ~~~~~~~~~~= $1000.00

At first look, it appears I have $1000.00 this month to spend on dinner out, then a movie, a stereo for my car, a few dvds for the house, and other etc items.

The answer is NO you do not because chances are you will have something like car insurance due March 1 that is $700.00. Now you only have $300.00 left. Ok let’s go spend it now. No again. $200.00 of this money is needed to pay the property taxes March 15. The final $100.00 is needed to fix the broken tv.

Why in God’s world would I save this $1000.00 in January for bills not due until March? What about the money I am going to make in February? The $1000.00 left over from February is going to be needed in April to pay those other nonmonthly reoccurring expenses like the water bill, heating oil, and such. Looking at tomorrow and not just today will allow to have the money tomorrow when it is needed. Huh, thought I had an extra couple hundred, now I’m broke again.

A very important thing to remember when you have money in your hand today, you need to think about not having the money in your hand tomorrow when it is needed to pay for a living expense. Learning to exercise self - control and prioritize ones finances is something each individual has to acquire on their own.

Think about how hard you worked to earn this money, putting up with the boss you just hate to earn that $50.00. Am I going to “waste” this $50.00 on something unnecessary? No I am not. I am going to be thoughtful in how I spend it.

Once you have your money in and money out figured out (hopefully you do have left over money) you prioritize where your money goes.

First place your money goes is to pay for all essential living expenses like food, water, & shelter. Making sure you can keep yourself afloat comes before anything else. If you have some money left after this that is good. Most normal people find that this is all the money they have. There just is not any left over for the fun stuff whatever it is. Most people especially those beginning lifes journey are always living behind the 8 ball, unless your rich like Paris Hilton. You just never seem to have enough money. Everytime you do get some saved something will need fixed or replaced wiping out what extra cash you thought you had. Then you save again, something breaks and your back to zero.

Once you have experienced a few late fees or bad check fees, you will quickly learn to prioritize what little money you have and spend it wisely. Being financially self sufficient will give both a feeling of accomplishment for you and alleviate the financial burden on those who (most likely your parents) have been supporting you or bailing you out.

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At 10:49 PM, Blogger Kim said...

Hi, thanks for visiting my blog and signing my guest prayer book. I will be praying for you. Kim


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