August 20, 2012 by FHElessons
I think, in general, my kids (who are now teens and young adults) are quite good at managing their money. But I thought I would share some tips that I have learned in my life about managing money in case there’s something they don’t already know.
Disclaimer: I promised you shorter blog posts in the future, but this is definitely not one of them. Sorry so long, but there’s a lot of information to cover! For a simpler lesson with activities and object lessons, see Money Management for Kids.
When I was a teenager and when I was single and in college, I didn’t really have any set plan for managing my money. I generally worked as much as I could, put all the money I made in the bank, and tried to only spend money when absolutely necessary. This worked pretty well since I didn’t have a ton of expenses (although I did pay for my own college tuition, my textbooks, and gas for my car). However, once I got married and became pretty much financially independent (as in no longer dependent on my parents for much support), I found that it was necessary to actually sit down and write out a budget and stick to it. Since as young marrieds we were both still in college, money was tight and had to be carefully budgeted. I wrote my budget in a little notebook, with a page for each category, and kept the notebook in my purse. Whenever I made a purchase, I noted it on the page for the category in which it fit, and I disciplined myself to never purchase anything unless it could fit into one of the categories of my budget. At the top of the page was the allowance for that category for the month, and I had to make sure not to exceed that amount when spending.
Nowadays there are computer programs that will help you make and keep track of your personal finances. Here is a link to a list of different money management software programs. At some point in your life, if you have a smart phone with one of these types of programs on it, you could use it to keep track of your spending. Or, you could make it a habit to record your spending at the end of each day on your computer at home. If you don’t have money management software, you can just create your own spreadsheet in Excel. Here is a link to some different budgeting spreadsheet templates that can be used in Excel. BTW, I don’t recommend using Google Docs or any other online software to track your expenses. I’m of the mind that less of your personal information being available to all eyes on the internet is a good thing. Of course, you can always go with the old-fashioned method and keep a little notebook in your purse or a list in your wallet! Lastly, Here is a link to a super cute PDF for printing budgeting envelopes.
To create your budget, you will first want to look back at your spending and see where your money typically goes. Check your bank account and your credit card statements and list all your expenses for the month, separating them into different categories. Or just take a month and write down all your purchases and expenditures, separating them into categories. This will give you a starting place for creating a realistic budget. You will see which expenses can be eliminated and which are absolutely necessary. Here are some of the categories I used for my budget. Some of these categories may be currently covered by your parents, but you can think ahead about how you will add these into your budget once you become responsible for them. For now, just take the categories that you are currently responsible for and add them into your budget.
At the top of your budget, list your monthly income (I would use my net income after taxes have been subtracted).
Then, list your expenditures:
- Fast offering
- Rent or Mortgage Payment (including homeowner’s or renter’s insurance, association dues, & taxes)
- Utilities (Gas/electric/water&sewer/phone/TV/internet)
- Home maintenance (repairs, upkeep, and improvement)
- Groceries (include food and non-food items)
- Food storage [long term(year) and short term(3 month)]
- Babysitting (if you have kids and work or go to school)
- Medical & Dental Expenses (include insurance premiums as well as expenditures)
- Car payments (hopefully you can avoid going into debt for a car and this won’t be included in your budget)
- Automobile upkeep (repairs and maintenance)
- Auto insurance (or just make a category for all your insurances since these are a set cost every month)
- Life insurance
- Debt payments (Hopefully you won’t have any of these. More on this later.)
- College tuition
- School supplies/ textbooks
- Personal grooming (haircuts, beauty supplies, etc)
- Dry cleaning
- Birthday parties and holiday celebrations (for your children)
- Money set aside to help your family or someone else
- Lessons for your children or yourself
- Dating/ Entertainment (movies, dining out, other activities, music)
- Vacation fund
- Misc. such as postage, long distance phone calls, snacks, etc.
- Long term savings (retirement and general financial security)
- Big item savings (for a home, car, furniture, large electronics, etc.)
- Short term savings (smaller items for your home, small electronics, or items to fund hobbies, home improvement, holidays, parties, etc.)
- Emergency fund savings (in case of unexpected repair costs, medical costs, or any unexpected life event such as job loss or disability)
Whew! That’s a lot of categories, right? Fortunately, you’re not responsible for all of them yet – you’re working your way into it instead of having it all suddenly dropped on your head. But, when you do get to the point that you are responsible for all of the above categories, remember that you have some leeway in how much is required in each area. Here are some tips as to how you can lower your expenditures:
1. Always pay tithes and offerings first. Blessings come from paying a faithful tithe. When we were in a married, student ward at BYU, every, single fast and testimony meeting was filled with people bearing testimony of the principle of tithing. These were students on very low incomes with high expenditures for tuition, etc. They usually had little to no money left over for food. But every week there were multiple people testifying of how they had paid their tithing even when they thought they had no money to give, and they were blessed with food on their table and having all their needs met. The Lord has promised us this specific blessing for paying tithes and offerings.
2. Try to live simply. Distinguish to yourself between things you really need and things you just want. When you really think about it, the things you actually need are a very small category. You need food, shelter, and clothing. But do you need luxurious shelter, rich food, or expensive clothing? No. More “things” don’t lead to more happiness. In fact, we often become slaves to the things we own. Each possession we have takes time and money to maintain, insure, repair, etc. Keep things simple for increased happiness.
This includes your home. I recommend keeping your expenditure for rent or mortgage as low as possible. Having a low mortgage payment has helped us to have the freedom to take fun vacations and buy cars and have money for lessons for our children and other fun things. I have friends who bought the absolute largest house they could possibly afford, and then they were sorry later because such a large portion of their income went to pay their mortgage that money always felt tight, and they didn’t have money to have fun or do other things they wanted to do. I think it’s a lot easier to be happy in a smaller, less luxurious home and have money to play with than to have a huge home and no extra money. Buy less “things”, and you will still have room in your home for everyone and everything you have.
3. Utilities can be kept low as well by keeping your home a little warmer during the summer and a little colder during the winter. I remember Grandma & Grandpa Laurent wearing coats and hats in their home in PEI because fuel costs were so high, and they would rather spend their money on something other than propane. Similarly, think about what you really need when it comes to phone, TV, and internet services. Shop around for the best prices. Perhaps you really don’t need TV at all, and, if you do, you certainly don’t need the biggest package with all the channels. There really isn’t anything on anyway!
4. Here are a few tips to help you save money on groceries:
- Don’t shop when you’re hungry (this cuts down on impulse buying)
- Shop as few times in the month as possible (same as above)
- Buy extra of non-perishable items when they are on sale. Over the course of 3 months, just about everything you normally buy will go on sale. When it does, buy enough to last 3 months.
- Check the grocery store ads that come in the mail for which store has the things on sale that you want to buy that week.
- Clip any coupons that come to you. There are many, many websites and blogs devoted to the craft of couponing. Here is an article that describes the basics. Make sure to combine your coupons with sale prices.
- Grow your own food if you can. Even some vegetables grown in a pot on your balcony can save you money and give you the vitamins in fresh food.
- Prepare as much of your food from scratch as you can. Flour, dried beans, and rice are very cheap foods. So are potatoes. In general, the more processed the food is, the more expensive it will be. Preparing your own food is not only cheaper but healthier.
- Compare unit prices (the quantity divided by the selling price) to get the best value. Generic items are often the cheapest, but not always.
- Watch the prices as your groceries are scanned and speak up if you see a mistake. Also, Walmart will match prices to any other grocery store’s ad. Just bring the ads, and as your items go through, tell the checker that you want to match a price on that item. She will change the price to the lower one.
- And, of course, stick to your budget. Even if it means eating Top Ramen for dinner every night!
5. Home maintenance and auto maintenance: I recommend putting aside a monthly sum for these expenditures. They are going to come to you without fail, and if you don’t expect them and prepare for them, you won’t have the money to cover the costs when they come. Try to build up a special savings account with about 3-6 months wages in it in case of emergencies. Choose a percentage of your monthly income to add to this fund regularly.
6. Debt payments: I VERY MUCH hope that you will try your VERY, VERY best not to go into debt! Most likely, you will have to go into debt to buy your home (although there are some people who save money and purchase their home with cash), but for everything else, I hope that you will avoid debt. We have purchased 10 cars during the course of our marriage. For the first one, we borrowed money from Christopher’s parents, but we paid it back within a couple years. For all the rest, we have saved money and paid cash for the cars (and 3 of these have been brand new cars!). It’s totally doable to save enough money for a car, and you will be glad you did. With that first car, it was always hard to have to make that car payment every month. I have found that if you pay cash up front for your purchases, you are excited about the purchase, and you are willing to part with the money for it. But if you take the item home without fully paying for it, then it’s very unpleasant to have to keep paying for it after you own it, and it is no longer new. Furthermore, interest accumulates at a rapid rate. Even for your home mortgage, which is probably at a very low rate (a quarter of the percentage of the interest rate on a credit card), over the course of your mortgage, you will end up paying about double the actual value of the home. In other words, if you paid cash for a $200,000 home, that’s how much you would spend. But if you paid off your mortgage, you would spend more like $400,000 on it. For debt accumulated on credit cards, the amount you’re actually paying is much, much more than that. Some people get themselves so deeply into debt that they have trouble ever getting out of it. Again, TRY YOUR VERY HARDEST never to take on any debt at all. You may have to take on debt for your mortgage, and maybe even for some school loans for graduate school, but try to make these debts as small as possible by buying a smaller home with a shorter mortgage term and living frugally to avoid excess debt.
7. A note on credit cards: A credit card is basically a monthly loan, usually with a grace period to pay back the money borrowed. Each card has a limit, or maximum amount of money you can spend with that card. With most companies, you have until a certain date each month to repay your purchases before they start accruing interest.
- If you get a credit card, make sure to get one with no annual fees. It’s nice if it also has reward points that give you cash back or free stuff.
- Credit cards can be useful tools in order to make spending convenient and to accumulate rewards points, but no rewards points are worth it if you accumulate debt on your credit card. Interest rates on credit cards can become very high and credit card debt is particularly expensive.
- Late payments result in fines and even higher interest rates, not to mention ruining your credit rating.
- If you don’t pay your balance in full, the amount you owe the credit card company will increase until you pay off your full balance. Interest will continue to accrue and may be difficult to ever get out of.
- Make sure to only spend on your credit card the amount that you can pay off at the end of the month. NEVER carry debt on your credit card!
- Pay your credit card balance in full at the end of every month. Period.
- If your credit card is lost or stolen, be sure to report it immediately to the credit card company. You are not responsible for any charges made that you did not authorize as long as you report it.
- Go over your credit card statement carefully to make sure that it is correct and that you made all the charges. If you find any unauthorized charges on your statement, be sure to report them immediately.
8. Many of the categories left to discuss are “elastic” expenses. They can be made to be very small or allowed to be very large. I recommend arranging your budget to allow yourself a little “fun” money. Of course, it’s great to have self-discipline. You’ll never be able to live within a budget or to save without self-discipline. But it can be very hard to be disciplined all the time. Allow yourself a little fun. Set aside money to buy new clothes once in a while, to go on dates (this is actually a very important category both before you get married as well as after), to have a little entertainment, and to play. Allowing yourself some small indulgences will help you to be more disciplined over all.
9. Savings are an important part of your budget as well. Even if your job offers a retirement plan, it’s good to establish a long-term savings account for yourself. You never know if that job will last forever, plus, there are many instances of companies that have gone bankrupt, leaving all the employees without any retirements. So, make sure to set aside a portion of your monthly income for long-term savings. We’ve already talked about setting aside a savings account for emergencies. You can also have a savings account for shorter-term items such as vacations, furniture, and other items you wish to buy. Again, I STRONGLY RECOMMEND saving for these items and paying cash. Do NOT buy them on credit, no matter how tempting the terms may seem! One link below discusses building a savings account large enough to be used as your insurance policy so you don’t have to pay insurance premiums. Another one talks about how to save and invest in order to put a million dollars in the bank by the time you retire. If you’re going for one of these methods, you will want to consider all your savings as one lump sum. Alternatively, you can open several different savings accounts at your bank and set it up to have a certain amount transferred into each account every time you get paid, one account for long term, one for short term, one for emergencies, etc. For very long-term savings, such as your retirement fund or your mega-emergency fund, you can put the money into a type of account that earns more interest, such as a CD. This will make it so that you cannot access the account without paying a penalty, except every few years when it comes to maturity, but will make it so you earn more interest, and your money builds on itself. Certainly there are other, more risky investments you can make with your money that might earn even more, but that is the subject for another lesson.
10. Sometimes there will be a large expense that you haven’t saved for but that you feel you need to have right away. This will definitely NOT be something like a TV or a couch. It would be something like college tuition, a mission, marriage, children, a home, etc. Be sure to make these decisions prayerfully. The Lord will let you know which way your life should go and what expenditures are right for you. Sometimes these big life decisions must be made with faith. Sometimes trying to balance them into your budget will not work, but you may feel prompted by the Lord to do them anyway. Always include the Lord in your budgeting decisions. Always seek His help in managing your finances. He knows what the future holds, and He knows the best course for you to take. He will guide you to the ways that will bring you long term happiness, and He will take care of you financially as long as you do your best that you can do.
So, once you’ve tracked your spending and created your budget, doing your best to keep expenses below your income, allowing a percentage of your income to go into savings every month, and hopefully arranging your finances so you have a little “fun” money, the next step is to keep a record of your spending to make sure you stay within your budget. We’ve already talked about some methods of using computer programs or a little notebook to do this. Another method that I’ve heard of people using is to cash each paycheck, put the money for savings into the bank, seal up tithes and offerings in a tithing envelope, pay inelastic expenses such as rent and insurance, and then take the remainder of the cash and divide it into envelopes labeled with the budget categories for which the money will be used. When you go out to grocery shop, take the money from the grocery envelope. When you go on a date, use the money from the dating envelope, etc. When the money in each envelope is gone, it is gone! You will have to do without that thing until the next month.
Another useful tool in tracking your spending is to save all your receipts. Regularly check to make sure all your expenditures have been entered into your budget. Also, balance your checkbook every month. This helps to make sure no mistakes were made by the bank as well as helping you to see where you money is going. Watch the little things. It’s the $2 for candy and $5 for fast food that really add up. Again, don’t spend ANYTHING unless you can account for it in your budget!
Another tip: Don’t feel like you have to keep up with the big spenders. It may seem like other people have a lot more money to spend than you do. Others may have bigger homes, nicer cars, better clothes, etc. They may have money for extravagant entertainment activities or luxurious home upgrades. But, although this may seem to be the case, you never know the real situation of that other person. They may be living off Mom & Dad’s credit cards or they may be going heavily into debt. Don’t worry about what things other people have or what other people do with their money. Just resolve to do the best you can to live within your own budget.
You already know that it takes self-discipline to make and live within a budget. I also want to add that the ability to delay gratification is a quality that frequently determines happiness in life. Have you ever heard of the experiment done by Walter Mischel, a psychology researcher at Stanford University? He tested 4-year-old children by placing a marshmallow in front of them and telling them they could choose to eat that marshmallow now, but if they waited for a few minutes to eat it, they could have 2 marshmallows. He then followed the children for 14 years and found that the group who chose to eat their marshmallow immediately turned out to be prone to envy, stubbornness, and had lower self-esteem. The children who were able to delay gratification grew up to be optimistic, dependable, assertive, and trustworthy. That group also had higher college entrance exam scores than the group who ate their marshmallow immediately.
Discipline yourself to be able to delay gratification. This will not only help you financially but in other areas of your life as well. I promise you that if you can stay out of debt and live within your means, you will have a happier, more stress-free life. You will be satisfied with what you have. You will feel self-respect and the freedom of independence. You will not be under the task master of debt. And you will have enough to meet your needs.
Here are some great quotes concerning money management & finances:
“Happiness isn’t getting what you want. Happiness is wanting what you get.” (unknown author)
Get rich slowly! (this is the title of a blog I saw)
“There is an old formula which goes something like this: Income five dollars and expenses six dollars: misery. Income four dollars and expenses three dollars: happiness.” (Henry B. Eyring, Feb 1998 Ensign)
“The key to spending less than we earn is simple—it is called discipline. Whether early in life or late, we must all eventually learn to discipline ourselves, our appetites, and our economic desires” (N. Eldon Tanner, in Conference Report, Oct. 1979, p. 119; or Ensign, Nov. 1979, p. 81).
“ ‘Thou shalt not covet’ (Exodus 20:17). Our world is fraught with feelings of entitlement. Some of us feel embarrassed, ashamed, less worthwhile if our family does not have everything the neighbors have. As a result, we go into debt to buy things we can’t afford—and things we do not really need. Whenever we do this, we become poor temporally andspiritually.” (Robert D Hales, April 2009 conference address)
“Remember this: debt is a form of bondage. It is a financial termite. When we make purchases on credit, they give us only an illusion of prosperity. We think we own things, but the reality is, our things own us” (Joseph B Wirthlin, “Earthly Debts, Heavenly Debts,” Ensign, May 2004, 40).
“Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours. . . .Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.’” (Thomas S. Monson, “Constant Truths for Changing Times,” Ensign, May
But before ye seek for riches, seek ye for the kingdom of God.
And after ye have obtained a hope in Christ ye shall obtain riches, if ye seek them; and ye will seek them for the intent to do good—to clothe the naked, and to feed the hungry, and to liberate the captive, and administer relief to the sick and the afflicted. (Book of Mormon | Jacob 2:18 – 19)
OK, let’s recap. Here is a summary of the tips for managing your money wisely:
1. Create a budget by tracking your spending, organizing your expenses into categories, and setting goals to keep your expenditures less than your income.
2. Keep a record of all outgoing money, recording it in the proper category in your budget. Do not let yourself buy anything that doesn’t fit into one of your budget categories. When the money is spent from that category for the month, it is gone! No more spending!
3. Pay tithes and offerings first.
4. Live simply. Distinguish between needs and wants.
5. Make savings a priority.
6. AVOID DEBT!!!!!
7. Save for purchases so you can pay cash. Do NOT buy on credit! Pay off credit cards in full every month.
8. Prepare for emergencies.
9. Discipline yourself. LIVE WITHIN YOUR MEANS!
10. Allow yourself a little “fun” money if you can.
Here are a few websites that you can check out if you want to learn more about money management. I haven’t looked at these websites in depth, but it looks like they might be good ones. Use your own judgment: