Getting off on the right foot when you get out of school is about more than just getting good grades or a job in your field. Knowing how to make and keep a budget is something you should know how to do BEFORE you graduate.
"No one has limitless money," says Laurie Campbell, executive director of Credit Canada, a non-profit credit counseling organization. "And even if your parents are supporting you, you still need to be able to budget."
Why? Because bank overdrafts and/or unpaid credit card bills can cost you a lot in interest and hurt your credit rating, which will hinder your ability to make purchases investments (like owning a home) when you graduate, says Campbell.
"Overdraft interest can be devastating – up to 21 per cent and we’ve seen far too many. Young people end up starting their futures mired in debt because they used their credit cards to supplement their income while in school. Far too many of them end up in our offices because they’ve overspent."
Never mind how stressful it can be to worry about not having money at the end of the month.
"Going to college and university is a stressful time, and worrying about your finances on top of your studies can add another incredible burden to students. That’s why it is more important than ever for young people to learn the basics about money, budget management, and the difference between needs versus wants," says Laurel Ostfield, spokesperson for Capital One Canada.
Financial illiteracy
Budget tracking may be new to young Canadians, who, according to Ostfield, are surprisingly uneducated about money.
According to Capital One Canada’s back-to-school survey, conducted last August, nearly 60 percent of the post-secondary students surveyed (59.6 percent) were worried about having enough money to last them through the school year. In fact, some students said they made some big (and surprising) sacrifices to get by:
• Fifty-three per cent said they dip in to savings to cover everyday expenses.
• Thirty-six per cent said they skip meals to save money.
• Twenty-four per cent said they forego medication, dental visits or other medical treatment.
• Eleven per cent said they sometimes wear dirty clothes when they can’t afford a visit to the laundromat.
Despite the worries about not having sufficient cash to cover school year expenses, the survey revealed that many students were not using basic money management skills to help make ends meet. More than half (40 per cent) of students did not develop a budget and stick to it, and forty per cent did not track their daily purchases. Half of the students surveyed (50.4 per cent) said they learned how to manage their finances from their parents, while only 1.8 per cent said that they learned about financial management at school. Just over forty percent (41.2 per cent) said they taught themselves how to manage their finances. (For more information, visit www.capitalone.ca)
Needs and wants
Knowing the difference between needs and wants is crucial to developing a balanced budget, financial experts agree.
So how do you start budgeting? Start by setting a goal, says Campbell.
"It’s the very first thing you should do. Even if it’s just paying off a credit card or saving money to go on vacation, it can help you motivate yourself to start budgeting," she says.
Then draw up a list of your current expenditures.
"Remember all the categories, like rent, food, entertainment, transportation, books," says Campbell. First time budget trackers can obtain a list of possible expenditures and even a budget spending tracker that can be downloaded to cell phones at www.piggypal.ca.
Next, add up your sources of income, then calculate the difference. If you’re making less than you’re spending, you need to take a closer at what you’re spending money on. For example, a student might consider cooking at home, rather than ordering a pizza. Spending on clothing may have to be limited to sweaters and jeans and not include Gucci bags. And books can be purchased second-hand rather than new.
It’s all about making the distinction between needs and wants, says Campbell, who adds you should set some money aside for that goal you had in mind.
"That way there’s a reward for all your hard work," she says.
Budgeting 101:
1. Set a savings goal.
2. List your expenditures and income.
3. Distinguish between your needs and wants.
4. Cut costs in the wants category if necessary
5. Keep track and adjust continually.
Visit these web sites for further financial education and tools:
www.creditcanada.com
www.piggypal.ca
