Money Management 101

June 16, 2012

Yesterday, my daughter graduated from Cedarcrest High School.  I am still surprised how quickly time flew from the moment of her birth to this moment in time – where my baby girl is filling her hope chest and counting the days until she can be free of dependency on her parents for support.  One of the best things about graduating from high school are the presents.  Being a particularly lucky girl she has three sets of grandparents who never hesitate to shower her with all the love they can generate – which is no small amount.  To show their love at this momentous occasion – she has been given some money that she can use to help launch her independence.  This leads me to my topic of the moment, money management.

Young people need to understand more than ever how to management their money.  Thanks to the housing crash and the banking crisis, young people will not have the same opportunities that my generation had.  Very likely, the days of the “no money” down mortgage on a home purchase are over.  College expenses are over the top and with the unemployment rate the way it is – a bachelor’s degree is no guarantee of higher paying job or any sort of job at all.  Gasoline costs are through the roof – making commuting by car a luxury instead of a given.  In these circumstances what’s the best advice to give ?  Here are my suggestions:

1.  Watch your nickels and dimes.  I had a college instructor point out that a $3.50 latte can add up to almost $1,300 a year in savings. (If you indeed put it into savings and don’t spend it on something else.)  Do you go out to eat a lot?  Do you buy brand name items that generic brands could do just as well at a lower price; subscriptions to services you don’t use frequently; or magazines you don’t read?  Recently, we cancelled our Sunday newspaper when my husband and I both realized that more than often than not it ends up in the recycling bin without being read.

2.  Spend less than you earn.  Shocking, but true – this is one significant way to ensure that financial security is in your future.  My newly graduated daughter is fortunate that she has parents who will house her without charge provided she is enrolled in school full-time and working part time.  Over the next few months, she can save her money and practice spending less than earns from her job.  She will research the cost of rent, utilities, cell phone, groceries, etc. – so that she will understand how much money she will really need to live on her own.  Because she has not had to purchase her own healthcare coverage and auto insurance – this is an area she will have to consider as she seeks her independence.

3.  Consider investing.  If she were to start now at age 17 – and consistently invested say, 10% of her annual gross income every year – 10 years from now she would have a little bucket of cash that she could use towards a bigger ticket item.  If she starts this with her first paycheck – she will not feel the pain of saving as she will not be used to spending the extra money right from the beginning.

4.  Track your spending.  Do you know where all your money is really going?  Do you realize how much you are spending on incidentals?  How about gas?  groceries?  cable, internet service and telephone?  Car insurance or home insurance?  How long has it been since you have reconciled your bank account?  If you have not recently reconciled your bank account, I would make the statement that you cannot possibly know what is happening with your hard earned money.  My daughter has had her own bank account from the age of 13.  I am sure that she has never once reconciled her bank account.  Before she leaves for school this summer, that is one lesson that we will do together.

Financial security is precious and it can be obtained or at least improved upon with a greater awareness of what it is that we are doing with the money we currently receive.  Make sure you are managing that part of your life responsibly and the rest will come much easier.

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