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Before you can even begin to get control of your money, you must first find out where it is going.
Drawing up a budget is a waste of time if you have no clue how much you are spending. Setting a limit for yourself of $50 a month on clothes — makes no sense if you currently spend more than $100. Before you can chart a new direction for your personal finances, you must find out where you and your money are headed.
When I was back in high school — I made some great coin working various jobs for the city. I was rolling in it, and since my shyness toward the opposite sex ensured that I didn’t have a girlfriend, my dough was all mine. Now, when I look back at all that discretionary income I had, I am left with one question — where the heck did it all go?
I never tracked my spending. So, I couldn’t tell you how much I spent on entertainment, clothes, or fast food. The only thing I could tell you was I saved nothing. I never could be bothered tracking my spending. In my day (man, I sound old) debit cards were just getting started. Everything was paid for with cash. That can be a good thing. But it leaves no paper trail. When spending cash, tracking your spending requires you to write down in a log book or enter in a computer the details of each payment. Who has time for that?
Luckily for you, we live in the time of debit cards and mobile banking apps. These tools will track your spending for you. All you have to do is use your debit card instead of paying cash for one month. You can do that. Just make sure your bank does not charge a service fee for debit card purchases.
For that month, keep your spending habits the same. If you use your debit card, you can utilize internet banking and go back and look at your transaction history and add up where your money has gone for a month. Each transaction will have a summary giving you details of where you spent your money.
If you don’t use internet banking, enter the 21st century and get signed up. Otherwise, you can track your spending the medieval way and by using your cash and debit card and collecting your receipts in a shoe box for a month. Then go back and add them up to see where your money has gone.
Either way, tracking your spending for one month is pretty easy and requires little effort. Just do as you do — then go back and take a look. What you find may surprise you. Here are some common reactions:
“Who knew I spent $300 on going out to eat?!”
“Wow — my phone costs a lot?!”
“I just spent over $400 this month on clothes that I don’t even wear.”
“Yeah, that seems about right.”
Whatever your reaction is, now at least you know where your money has gone.
Now here comes the tough part — deciding if you are happy with your spending decisions.
This is a personal decision. It’s yours to make. After all, it’s your money. Maybe life is good and spending every dime you make is fine by you. What you do need to realize, though, is a tsunami of bills are coming your way no matter what post-secondary pathway you choose. Whether it is tuition or moving out on your own, you should start saving — now. Otherwise you may find yourself awash in debt.
So now you can’t say no one warned you. Hopefully, now you’re motivated to do some serious saving.
A Lesson in Finance appears in the Mercury Tribune every month. Gregory Cawsey is director of business and financial literacy education at John F. Ross CVI’s Ross School of Business. He can be contacted at gregcawsey.com.
Want more lessons? Check out lessonsinfinance.ca
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