It will not be long before such cardholders face problems-serious problems! In the case of irresponsible school or college students, irate parents will have to make good on unpaid bills. A number of borrowers will have to reduce future spending drastically in order to satisfy outstanding bills and provide hefty repayments on their overdue accounts. For the first time in their lives many will be forced to budget their expenses carefully and to discipline their spending accordingly.
Perhaps you have never been in a position to spend more than you had or been tempted to be careless with your money. Nevertheless, you are always going to face the question of how to match expenses with income. Managing money is a lifetime job that starts the day you receive your first allowance, and it is made more difficult when you take home earnings from your first part-time job.
You will appreciate the importance of learning how to manage your money if you consider the surprising fact that over the next twenty-five years or so after graduating from college, you may have over a half million dollars or more at your disposal.
Should you marry and both you and your spouse work, the figure could add up to well over a million! Furthermore, in the case of professional men and women, the total could be considerably more. Alas, this will not be true for everyone, but regardless of how much or how little you have, budgeting is the key to your being financially solvent. Your happiness and security and that of your family will depend upon how wisely you manage and spend your income.
One subject most schools do not teach is the proper management of money or budgeting of one's income. That is too bad because many people never learn how to plan money matters wisely. It is so easy to get started spending recklessly, and it is extremely difficult to break this habit. Part of the problem is that we never think about money itself or its value.
THE NATURE OF MONEY
Since the earliest times man has sought ways to exchange the things he made, raised, or earned for other things he wanted or needed. Before the invention of money he was forced to barter. Barter is the exchange of one product or service for another product or service. Thus someone who raised cattle would have to decide how many cows he would exchange for a grass hut or a dozen baskets of rice. A laborer would be forced to work out a way of trading his services for food, clothing, and shelter. It required valuable time to barter, and our ancestors wanted a better way of doing business with each other.
Over the years men solved the problem by inventing a money system. They realized that whatever they chose for money had to be accepted as a medium of exchange. It had to be useful in comparing the value of things, and it had to be something that could be saved.
Certain products such as salt, tea, nails, cattle, and grain, which could be counted or measured, were selected as early forms of money. In America, Indians made and used strings of beads, called wampum, as their medium of exchange. Gradually metals like gold and silver were substituted for products, and different metals were used to form coins or tokens of varying sizes. Early coins carried likenesses of kings and rulers; just as in the United States our modern coins have images of political leaders. As nations grew, their commerce, industry, and agriculture expanded. Larger amounts of money were needed because coins were inconvenient and heavy. Other forms of money had to be devised.
Today we have two kinds of money: checkbook money or bank checks, which many people use to pay most of their bills, and cash money, which includes the coins and paper bills you carry. The term currency is used to describe coins and paper bills that now circulate in payment for goods and services.
It might be said that a third kind of money has been invented recently-"plastic money"-the credit card already discussed above. Although it is not a true form of money, it acts like cash, and the bills it creates have to be paid with checkbook money or cash money. It is a convenient form of cash-too convenient for some people-but it appears to have taken its place as an important part of our monetary system.
APPRECIATE THE VALUE OF MONEY
Not everyone appreciates the value of money, whether earned, inherited, or found. Money enables us to buy the things we need-food, clothing, and shelter-and the things we want-a pair of skis, a new outfit, a stereo, or a ticket to the movies. When you have a family and need to stretch your dollars further than it seems they can possibly go, you will realize how very valuable money can become.
Here is how Robert Bill, a banker, advises young people to stretch their dollars:
"Buy carefully and make sure to get the maximum value for each dollar you spend. Beware of bargains, for they are not always what they seem to be.
"Don't waste your money buying things you don't need. Resist the temptation to buy something just because you think you must have it. Ask yourself if you will still want or need the article tomorrow or next week.
"Make it a practice to save some part of your income regularly, no matter how small the amount may be. Savings grow and earn interest. Savings enable us to buy the things we otherwise could not afford. They are also handy to have in time of trouble.
"Finally, have a sensible plan for managing and spending your money. This is called a budget."
SAVE REGULARLY
Whether your spending money comes from an allowance or a job, make it a habit to save some part of it on a regular basis. Don't delay, start now. If you can't save 10 percent of your income, why not consider 5 percent? If you are saving for further schooling or college, you may be banking almost all your money. If so, more power to you!
Your local bank-be it a commercial or savings bank or building and loan association-is a convenient place to deposit your savings. Many banks accept as little as ten dollars to open an account. Deposits in amounts just as small are welcome. Your money will earn interest, which will probably average around 5 to 6 percent a year. A receptionist or teller will tell you whom to see in order to open a savings account.
Having a savings account will bring you great personal satisfaction. It is a nice feeling to have cash in the bank and fun to watch your savings grow, to note how the interest increases the total, and know that it is all yours to do with as you wish. Best of all, you have started down the road to thrift and will be forming a habit you will never regret.
KEEP TRACK OF YOUR MONEY
Have you ever noticed how quickly money disappears? That's not unusual-that is, unless you keep track of just where you spent it. If you have a book in which to keep a record of your incoming and outgoing cash, you will have a better idea of how you spend your dollars, and you will be more likely to keep up with your plan to save.
At an early age the millionaire John D. Rockefeller, Jr., kept detailed account books, recording cash transactions such as 20 for sharpening pencils, 100 for putting down rugs, 20 for killing flies, 250 for fixing a fountain pen. By the time he was sixteen, he kept the payroll for his father's Forest Hills estate in Cleveland, and before entering college, he bought horses and was running the Rockefeller stable in New York.
Although you may not be the son of a millionaire, you will find it fun to handle your own cash in a businesslike manner. Three small jars, boxes, or containers of any kind will do. Label them Regular Savings, Special Savings, and Cash. Regular Savings will hold all the money you regularly put aside. When you accumulate a couple of dollars or more, you will probably want to put it into the bank. Special Savings will be for the money you are saving for some special reason such as clothes, a new cassette, or a special event. The Cash jar will hold the rest.
Perhaps you would like to keep track of your cash along the lines that Howard Doebler adopted.
Buy an inexpensive notebook, rule it, and head the columns as shown in the example of Howard Doebler's cash record book. Make your entries at the end of each day. If you wait until the weekend, you may forget some of your expenses, and your record will not be accurate. Under the column headed Remarks you will want to note the reason money was received or spent. When cash is received and entered under the third column, it will increase your cash balance. Likewise, when you spend money, the cash balance will be reduced by the amount spent and recorded in the fourth column. If you study Howard Doebler's cash record book, you will understand how to start your own.
BUDGET YOUR EXPENSES
We have just discussed how best to keep track of your income and expenses through the use of a record book and three containers in which to keep all your cash. There is more to managing your financial affairs, however, than just keeping a record of where your cash comes from and how you spent it.
Even though you keep an accurate account of all your cash transactions, there is no guarantee you will have money for a birthday present or one of those attractive T-shirts when you need it. How many times have you wished, just before Christmas, that you had saved your dollars so you could buy your mother an extra nice present? Also, you may find that the nickels, dimes, and quarters in your savings jar do not accumulate as fast as they should.
What you lack is an orderly plan for spending your money. A plan, or budget, should accomplish three things:
- enable you to save regularly
- provide money when you need it for expenses you know you will have
- furnish you with necessary spending money
School lunches cost 600 a day or $3.00 a week, and if Howard wants an extra dessert he has to pay for it himself. Scout dues are $2.00 a month. Howard puts $2.00 each week in the church collection. He saves $5.00 a week toward college and $2.60 a week for regular savings, which will be used to buy a new pair of ice skates. During the last four months of the year he has a special Christmas savings account of $5.00 each month.
As he thinks ahead over the next two months, he knows that he must provide for the Halloween dance in October as well as for a present for his father's birthday. In addition he is going to need a couple of pairs of the special socks that he likes to wear when roller skating and that his parents do not feel they can afford to buy. Whatever is left over after providing for all these expenses is "spending money," which he carries in his pocket.
During November Howard expects to have the same regular expenses plus a magazine subscription that comes due, and he wants to take his girlfriend to the senior prom, which means buying two tickets for $10.00. As you will note, he will have $16.00 spending money during November instead of $12.00, which he will have during October.
A good budget should take care of all future expenses, but there may be times when for one reason or another you will have to change it- especially when unexpected expenses come up. At any rate, try to stick to it and resist the temptation to buy something for which you have not budgeted your cash. If you use a budget as a guide for all your financial transactions, you will always live within your means and never go into debt.
See if it isn't fun to draw up your budget and prepare your record book. At the end of each month you will be able to tell how well you budgeted your expenses and whether your future budget should be changed. Get yourself a notebook and three jars and set forth on the road to financial independence today!
Graduation from high school or college should not mean the end of your budgeting! If after high school you go on to postgraduate studies to a one-, two-, or four-year College, you will find it even more important and helpful to handle your spending in a responsible manner. Your expenses will be greater than ever, and you will need cash on hand to meet many obligations. The temptation to spend will lurk on all sides and call for real discipline to resist. A budget that tells you exactly how much you may spend, and where, is the best way to avoid serious financial problems.
Note, however, that budgeting should not end when you complete your education. Far from it! Out in the real world where you will have to support yourself and provide for all your needs, a close watch over spending will prove essential. Don't let friends dissuade you from managing your money carefully. Too many young men and women refuse to maintain a budget because it shows them they cannot afford all the extras and luxuries they crave. It is difficult to understand such an outlook or have much sympathy for these people when they have incurred more debts than they can handle.
Todd Witherspoon's father helped him start his budget when Brian was in the fifth grade. He continued it through high school, college, and his working life. Long after he got married his wife told us: "Thanks to Brian's budget, even though his salary was never large, we always met out bills, had cash for emergencies, and never had financial crises like many friends of ours. I am a great believer in budgeting."
You, too, can have smooth financial sailing throughout your life if you budget and use your credit cards wisely.
