Part of the Money Talks Series
How many times have you asked yourself the question, "Where did all my money go?" or "What did I spend my money on?" A key life skill to have that will set you in good stead for life is the ability to learn good spending habits early on. Skills like that will set you up for life and benefit you no matter your income.
A spending experiment
The quickest, easiest and most importantly, the most honest way to see precisely what you spend and on what is to keep your receipts. So I challenge you to conduct a spending experiment. You can choose the length of time for which you do it, but, it must fall between a week to a month, nothing less. Anything more is overwhelming. I suggest you do it for a full month to get a really good overall perspective.
Step 1 - empty or box or a drawer in a prominent place preferable wherever you put your handbag down when you come in the door.
Step 2 - make sure you request receipts for all your purchases no matter how small.
Step 3 - put them in your purse or handbag till you get home, no throwing away.
Step 4 - when you get home place all the receipts for the day directly into your chosen place immediately.
Step 5 - any purchase you don't get a receipt for or money that you paid someone back for or debt orders off your account need to be recorded in a notebook. ALL OUTGOING MONEY NEEDS TO BE ACCOUNTED FOR.
Step 6 - when your allocated time comes to an end set aside an hour or so of your time to sort the slips and notes. Sort them into categories according to the purchase type. Eg. Clothes, going out, groceries, make up
Step 7 - Next, either using an excel spread sheet or a piece of paper make columns with headings that correspond to the piles you have made.
Step 8 - make a note of each purchase in its respective column stating the totaled amount on the slip and what the purchase for.
Step 9 - tally each column. This will give you a clear idea of what you spend the most on. It will show you where you are wasting money and where you could be saving.
This exercise is truly eye opening and give you the necessary wake up call you need when you see it in writing as to where all your hard earned money goes and what that money could actually be doing for you in the long run.
The good news is, is that now that you know where your money is going you can now reallocate those funds to more deserving purposes :)
The Steps to achieving this are:
1.) Having set goals - concept of paying yourself first
2.) Distinguishing between needs and wants
3.) Creating a budget
4.) Starting an emergency fund
5.) Holding onto your cash
Step one - Goals
As mentioned in the previous article you need to establish your short, medium and long-term goals as applicable to your age. Next you need to determine how much each goal is going to cost and how much you are going to put aside each month for each goal in order to achieve it. This is called PAYING YOURSELF FIRST and you should look at it as a reward, as a good thing. It should be, other than debt, the first thing you do with your money every month.
Step two - Distinguishing between wants and needs
It is very important to know the difference between wants and needs. You need to pay your rent but you don't need to go out for dinner every week. Always spend your money on your needs first that way you will have all the rest to play with. You will know exactly how much you have left for all those wants. The aim is not to deprive you, quite the contrary, the aim is to let you enjoy your money and fun. And won't you have more fun knowing that what you have left is all yours to play with and you don't have to worry about spending money you don't have?
Step 3 - Creating a budget
A budget is a written record of what happens to your money. It looks at the present (keeping track of your money), the future, (what you are going to do with your money) and the past (where has your money gone). It is important for keeping you out of debt and helps you to enjoy the money you have earned.
Step 4 - Starting an emergency fund
This is especially necessary if you are in the working world. This fund is to provide for those unforeseen circumstances that happen. What is the most financially devastating thing that could happen to you? Plan for it with an emergency fund. Often it is to look your job or source of income. Thus, the most common, is to save up enough to keep you going for between 3 - 6 months should you loose your job. This is just another reflection of how important it is to keep a budget so you know exactly how much you need to stay afloat for a month.
Step 5 - Holding on to your cash
Don't let yourself be swept up by people trying to sell you products that you don't need. A few ways to hold on to your hard earned cash are:
- set yourself a weekly cash budget and stick to it, carrying large amounts of cash in your wallet is a bad idea
- pay cash wherever you go and ask for a cash discount
- carry your student card with you and ask about student discounts
- when grocery shopping buy the stores "no name" brand as they are just as good as branded products but cost much less
- get secondhand textbooks and for novels check out your local book exchange
- look for furniture for your dorm room or apartment at second hand shops or auctions and refurbish
Have an inspirational day :)