August 24, 2012 - submitted by Nathalie, India
Q. TEAM ORACLE QUESTION #85
I need to learn to manage my money and I'm wondering if there is some sort of rule to go by so that I'm not going from paycheck to paycheck. I'm in college and it isn't wise to live like I were still at home. Do you have any recommendations?
The Oracle replies:
Yes, there is some sort of rule: budget, budget and budget.
There are two questions to ask yourself when you are trying not to overspend -
Do I need it? Can I afford it? If you answer "no", don't get it.
If you list all your income against all your outgoings, work out what you can afford to spend.
I also suggest you plan and keep records of everything you spend and on what. Aside from bills, money can seemingly disappear. If you are spending more than you earn (or have) you need to make changes.
Accommodation, travel, food are the obvious expenditures to prioritise but obviously you want to go out and have fun and buy things for yourself.
College is often the first time young adults have to learn about the real costs of living and trust me, you don't want to spiral into debt so I'm glad you asked for help.
If you learn a few key practices, you'll get into the habit and routine of looking where to shop for bargains, what time of day your local food shops reduce prices, where there are offers, who accepts discount vouchers, 2 for 1 deals - there are many ways to reduce your spend but do try to stick to the essentials for a while to get yourself straight.
I do NOT recommend any sort of loan or credit; start as you mean to go on - it will prepare you for post-college life too. If you already do have a credit card, look at whether there are options to transfer to a 0% interest one and then cut all cards in half.
If you do already have any debts, work the repayments into your budget plan. Also allow for the unexpected so don't spend everything that's left - if there is anything left.
Obviously taking on extra work will help the situation but if that's not a possible option, just remember, don't panic - BUDGET!
Over to you.
Nathalie, here is a simple rule that has worked for me for many, many years. First of all, add up all your expenses for a month. That includes the basic necessities like cost of lodging, utilities, food, payments for anything like a car or on credit cards - the money you have to spend each month in order not to fall into trouble. Next look at how much money you have coming in each month from your job or other sources. Subtract the first amount from the second and hopefully you have some left over. (If your outgo exceeds your income, you need to figure out how to cut expenses so you can cover the necessities.) Now, divide what's left over into thirds. The first third you save. The second third you donate to charity or church. The last third is yours to spend as you wish. NEVER go without saving something; if money is tight you can reduce the give-away money and cut extra spending, but always save! If you follow this rule, adjusting as your income grows over the years, you will be managing your money wisely. I wish you the best. Jill, United States.
I had the same problem too, I wasted a lot of money. The thing is to have an exact amount of money for a week or a day and based on that, spend your money daily. Perhaps, you should start to put some limits. You can also have different amounts of money for each thing (clothes, food, etc). It's true that maybe when you see something that you really like, you forget about price tags and take it. But you can save money, and have a special day when you can buy everything you want with a budget. It's difficult at the beginning, but with the time you can get used to it, like I did.
Have a great day, Lyssete.
I too found money management a challenge when living on my own. One mechanism I learned about was "pay yourself first".
In short, what "pay yourself first" means is paying "yourself" a certain committed amount of money every month as if it were a utility bill, and set it aside in an investment vehicle that you can't touch. If you're short one month, make up for it in the amount set aside in subsequent months. Only after this amount is set aside should you pay your other obligations like utility bills, food, and money for recreation/entertainment etc. Obviously commit yourself to an amount of money that you can handle depending on your income/allowance. Start off with small amounts and as your income increases, increase the amount set aside. This way, you can feel free to spend more of your earnings for that month knowing that you've already set aside your savings by "paying yourself first". Hope that helps, Raj.
It's very useful to make a list of all the money you spend in a month. This way you can see where all of your money is going! First, write down your bills, groceries, and other necessary expenses. This amount should only be used for these necessities, nothing else. If you have any money left over, take a percentage of that (maybe half or more) and put it in savings, and use the rest for anything you would like to buy. Unexpected things in life can pop up and have you reaching for your wallet, so always be mindful! Best of luck,
Its tough to see how good you had it at home isn't it? I remember leaving home and the shock of how expensive things are - wow! It blew my mind. Anyway, I always buy the cheapest food and do without luxuries when I can't afford to spend much. There are a lot of bargains out there. Certain foodstuff like pasta is cheap and filling so you can but things like that in larger quantities to save costs. Second hand shops are great to grab a bargain - especially clothes. My friends and I did a clothes swap party so everyone brings something they no longer want and other people can take it if they like it. It really worked! Good luck. Samantha.
I don't know if you live in a house share or on your own. Maybe you could club together with a group of friends to buy certain things in bulk and share the cost. Don't forget to be aware of utilities - it's easy to rack up huge bills when you're acting as if (as you said) you're still at home.
Look at any existing bills you have and look into reducing them - things like payment plans or subscriptions you can do without. If you smoke or drink, look at giving up / cutting down. Dave.
If you don't have a job, get one! That will help. There are plenty fun things you can do for free with your friends so maybe go out less to save a few quid. I know it's hard especially at college as most people want to go and party - but I'm sure you can strike a balance as you've asked for help so it sounds like you're the sort of person who CAN do it! Pippa.
Thanks to all those who wrote in with their advice. Remember, Team Oracle is open to anyone so if you fancy replying, click to read this week's question, and send us your answer.