Help me organize my finances
October 26, 2005 3:16 PM   Subscribe

Help me organize my finances. While reading another thread I was struck by the number of people who balance their checkbooks on a frequent and regular basis (like every day), and it made me wonder what's involved. I am one of those paycheque-to-paycheque people (rather student loan-to-student loan) and although my bills are never unpaid, I'm falling behind in other things.

My partner and I are both students and we both work part-time. Our student loans are paid once-monthly and the first thing we do is pay all our bills for the month, then tuition, then food, then fun. We also periodically get scholarships, and my dad sends me money sometimes. I pay a very small amount into an RRSP every month, but other than that, we have no savings.

What we do have is $2000 in VISA debt, $400 owing on our computer, and a ten year old car. I don't know if this matters but I am in Canada.

I have always been in the mindset that "We are starving students! We can't afford to save money." but I think that we could save a little bit if we could get our spending habits under control.

So I guess my questions are these:
1) Can I afford to save money? Should I wait until VISA is paid off?
2) How can I learn to budget and stick to it?
3) How can I learn to balance my chequebook?
3a) Is there a good (cheap/free) program that can help me?
posted by arcticwoman to Work & Money (17 answers total) 5 users marked this as a favorite
You need microsoft money or quicken. Be sure to use it.

You can buy a used copy on eBay for cheap.
posted by letterneversent at 3:22 PM on October 26, 2005

Most everyone can afford to save a bit, I think. If you want to be ruthless about it, rip out the fun. Those $40 nights at the pub add up. But even if you don't do that, you can probably stretch things out a bit. There must be a couple of things every year that you either regret buying or else didn't absolutely need.

That said, one of the golden rules of investing has always been "pay down your debts first." The reality is a little bit more flexible—student loans, for example, though the interest rate on those isn't that great either—but it's hard to make money if you're busy paying interest on something else. Put another way, how much is the monthly interest on your loans? If you can find an investment that will beat that, then go for the investment; otherwise pay your debt!
posted by chrominance at 3:24 PM on October 26, 2005

You should have some emergency fund money in case of catastrophy (particularly with an older car) but with an existing credit card debt it's pointless to have savings for the sake of earning return.

As far as #2, if you're actually as strict with yourself as you claim about what order you spend money in then the only question is what constitutes "bills?" Are there magazines you can stop receiving and just read at the library or in the bookstore? Monthly services you don't really need?
posted by phearlez at 3:26 PM on October 26, 2005

I say pay off the credit card/computer as soon as possible, then do not buy anything else on credit until you are more comfortable financially. I'll also add that once that is done, or maybe before, I have found in the past that getting a new (or a reliable used) car is a good way to control your finances -- sure, you ahve the payment to worry about, but you don't have the constant threat of looming repair bills, even a modest repair can cost several times the monthly payment on a 3-or-4 year old car. You also get the undeniable joy that comes with a new car, and the piece of mind that comes with not worrying about what will fall of your car next.
posted by Rock Steady at 3:30 PM on October 26, 2005

I am not a financial advisor, but I concur with Rock Steady--you need to pay off the debt first--both the computer and the credit card. It makes common sense (cents!) when you realize that for any given $100, you could either put it in the bank at earn what, 2% interest, or put towards a credit card that is charging 19% interest. In other words, your "savings" has to earn at least 19% in this example for you just to break even.
posted by Admiral Haddock at 3:40 PM on October 26, 2005

1. Strictly, you get ahead quickest and spend least if you pay your highest interest debt first; that's your VISA in all likelihood. There is psychological appeal in having a stash for emergencies, but I dunno about that - using your VISA for emergency credit is acceptable.

2. First, you start keeping track of what you actually spend for a couple of months. You can't set realistic budget levels unless you understand where your money goes. Then you need to think about what areas if any you want to reduce. Then you set target levels. Then you keep tracking your expenditure so you can ensure you stay at those target levels or under. Cheap trick - get a bunch of envelopes, label them with budget categories, put appropriate amounts of cash in them, spend from them, stop spending when cash all gone. Works well for groceries and incidentals.

3. Get religious about doing it in your chequebook after every cheque account transaction. Then when you get your statement, reconcile from cheque butts.

3. a) You don't NEED Money or Quicken, although I'm sure they're a big help. You can get a long way with a simple spreadsheet, or even paper and pencil (use highlighters for categories and scrawl on your bank statements!) Personally I swear by Gnucash (Linux/Unix only). The internet abounds with example budget spreadsheets, anyway. If your bank has internet banking it will probably allow you to download your statement as a CSV file suitable for playing with in a spreadsheet.

I live in a country where electronic transactions are the norm. I try to use an ATM card or VISA for everything (note I pay my credit card bill in full every month to avoid interest charges), and cash for as little as possible. Then it's very easy to import transactions from online banking into Gnucash, everything always reconciles, and I have a great view of where all my money goes.

Which comes back to question 2: one of your biggest wins is simply in understanding where you really spend money, and hence where you benefit most from being frugal.
posted by i_am_joe's_spleen at 3:43 PM on October 26, 2005

Best answer: You should cease putting money into the RRSP until the Visa is paid off. Your RRSP will accrue interest at 4.5% ofr whatever; the Visa debt will rack up interest at 29.99% or whatever; every dollar you put in the RRSP is a loss to your overall financial situation as long as the Visa debt exists.

The Visa debt costs you $30-50 per month, depending on the interest rate. If you pay it off, not only will you not have to pay on it any more, that $30-50 won't be hurting you.

I would strongly suggest not going out for the next month, not putting any money into the RRSP, and paying down that Visa debt. When that is gone, you can celebrate by going out (and paying cash for your dinner!)

Student loans are not as crushing since they often have low interest rates and long, forgiving repayment periods. But Visa debt will kill you.

As for learning, well, you just have to consider: you WILL learn about finances and budgeting. You will either learn the hard way, which will involve years and years of pain, or you will learn the easy way. Which do you prefer?
posted by jellicle at 3:45 PM on October 26, 2005

Quicken is great. Do you know someone who could lend you the disc? It's really easy to use and you can set up budgets and everything.
posted by radioamy at 3:52 PM on October 26, 2005

I found that while I could have used Excel or paper to balance my checkbook I never did until I started using Quicken and switched to a bank that supported it (this was ten years ago). Now once or twice a week in the morning over coffee I bring up quicken and sync with my accounts and have kept it up for ten years.

I would highly recommend using automatic transfers to save money, even if it's only going into your savings account. I have my accounts setup to transfer a certain from checking to savings after every paycheck. This keeps me out of the loop so I can't be too lazy to make the transfer or too cheap to save the money. You'll be amazed how quickly you can build up a decent amount of money.

Also, look into 401(k) accounts and see if your employer matches your investments. Free money. At the very least contribute to an IRA.

Pay off your cards as soon as you can and then pay them off every month, no sense throwing money away.

I have no advice regarding budgets as I haven't yet bothered, although my recent marriage, possible new home even children will probably require it.
posted by beowulf573 at 3:53 PM on October 26, 2005 [1 favorite]

In the past, I absorbed a lot of good advice about this kind of thing on the "Living Below Your Means" board at the Motley Fool. Unfortunately their boards are no longer free, and if you sign up for a trial, they spam you endlessly to get you to subscribe.

I use Quicken, in combination with a set of well-labeled folders in an upright hanging file holder on top of my desk (To Be Paid, Paid, Taxes 2005 [pay stubs go here], Bank Statements 2005, Credit Statements 2005, Auto Loan) and a little plastic envelope-sized receipt storage envelope with monthly dividers. You don't need a recent version of Quicken, and should be able to find old versions at Half Price Books or your local equivalent.

"Pay Yourself First" is a powerful statement. Direct deposit into 2 separate accounts (one of them is a "don't touch it" savings or credit union account) makes this easy. Pay off higher interest debts first. Balance transfer high-interest credit card balances to a lower interest credit card. Don't use a credit card if you don't have the cash to cover the payment. Automatic withdrawal from your paycheck into a retirement fund is a Good Thing. You don't really need that new [electronic gadget].

Good luck.
posted by matildaben at 5:00 PM on October 26, 2005 [1 favorite]

1) Can I afford to save money? Should I wait until VISA is paid off?

Having faced this dilemma myself and then conducted a long inquiry among financial types, the definitive answer is: pay off the debt first. Yes, it feels good and secure to have savings in case of emergency. But the value of your dollar is greater when applied to reducing your debt, since each dollar owed is worth more than a dollar out of your pocket once interest is applied. Think of your reduced debt as your savings. Should you need to fix your car or take a sudden plane trip, you can use the card for that, and you're not out anything. Also, if you've had a problem managing money in the past, how wise is it to build up a few hundred in the bank while you still have debt? Chances are much too good that something else will seem like an emergency and you'll spend the cash you worked so hard to save. Better to send the maximum amount you can afford each month to the credit card debt. The sooner you are free of that debt, the sooner you can begin saving and earning interest on the money, instead of paying it.

For a whole lot of really sound financial advice, read Suze Orman's books. Her TV show is not so helpful, but her books will probably change the entire way you handle your money and will make you a great deal smarter. And you can completely skip the sections that don't have to do with you yet - just read about your own situation. They're readable and quick, too. And congratulations. I really wish I had learned this stuff when I was still a student; in fact, I have only learned it in my 30s, and only just finished paying off the last of the $6000 credit card debt I ran up just out of college.
posted by Miko at 5:44 PM on October 26, 2005

More suggestions:
-Find a bank that offers free online banking - it is much easier to keep an eye on the bottom line when you can look at every transaction almost instantly.
-Figure out how you spend money. I know some people who cannot control a credit/debit card, but when they use cash/checks they are much more aware of where the money is going. For me it is the opposite - if I have cash in my pocket I spend it very quickly, but having to whip out my debit card makes me think twice about it. (also makes reviewing purchases online easier)
posted by Rock Steady at 6:13 PM on October 26, 2005

Best answer: In all of these PersonalFinanceFilter questions I post a link to a free budget tracking piece of software that I made. I won't link to it this time, since I figure my linking to it is getting old, and if you've done some research on past PersonalFinanceFilter questions, you've probably seen it. But you can check out my user page for a link to it, if this isn't sounding familiar.

It's free, and perfectly deals with the Figure out how you spend money notes from the thread.
posted by Alt F4 at 8:43 PM on October 26, 2005

Response by poster: That looks like a fantastic piece of software, Alt F4. My partner and I just went through the setup and are looking forward to using it starting Nov. 1st.
posted by arcticwoman at 10:17 PM on October 26, 2005

The first step - as others have said - is working out what you're committed to on a monthly basis.

I knocked up a spreadsheet with details of all my monthly direct debits (mortgage, insurance, etc.) plus the monthly equivalent of all my less frequent payments (ISP fees, car tax, etc.)
From that, it's quite straightforward to work out whether you're bringing in more money than you're paying out. It sounds like you aren't in the situation where you're the other way around, so that's a good start! ;-)

My next step was to re-arrange as many of the DDs as possible (ring up/write to the companies themselves, not your bank) - so that the payments come out about 2 days after your money goes in... this way you don't see your account and think "Woo - richrichrichrichspendspendspend!" (I went through a phase like this - short term fun, longer term - whoops!)

Rock Steady's suggestions are good ones too - I find it invaluable that I can see online 24/7 how much is in the account.
Another option instead of using your debit card for everything (which is what I do) - try withdrawing all your spending money at the start of the period (based on your budget, ultimately). Don't buy anything on cards. See how you get on.
If/when you see something you don't have the cash for don't buy it!! Make a note, and work out how long it would take to save for it...

Can't think of anything else at the mo... HTH!Good luck ;-)
posted by Chunder at 1:45 AM on October 27, 2005 [1 favorite]

Another good book of cost-cutting advice is The Tightwad Gazette.
posted by JanetLand at 5:59 AM on October 27, 2005

How can I learn to balance my chequebook

A good starting - conceptual - point is to use the term "reconcile" rather than "balance". The purpose of reconciling is to (a) identify things that the bank knows (or thinks it knows) that you don't (where "knows" means "appears in their records/statement"), and (b) identify things that you know that the bank doesn't.

For example, if you don't balance your checkbook, it may be hard to discover (a) that the bank charged a fee, or processed a check twice, or (b) that a deposit or check wasn't processed by the bank [not just at month-end], which means a lost/misprocessed deposit and/or a check that someone hasn't cashed (which is an issue if the payee is a business).

Or, to put it differently, after you've reconciled your checkbook, you've caught all your posting and arithmetic errors, and any errors by the bank, and you know about unprocessed deposits and checks and (if necessary) can follow up on those.

The basic approach, is therefore, is to start with what the bank thinks you have at month end, then adjust that for what you know [that are in your checkbook] that the bank does not (generally checks written at month-end, not yet cashed by payees), and then, if there is still a difference, check your math. (After that, finding what is different gets more complicated.)

Being able to download detailed information from a bank means that the matching process (to figure out what one party knows that the other does not) can be automated (if you enter your information into Quicken, or, with more work, a spreadsheet). Otherwise, you do the matching by marking in your checkbook (and, if you want, ticking off on the bank statement) which items are on the bank statement (that is, which items the bank knows about).

Some people (I'm one of them) actually look forward to balancing their checkbook; there can be something satisfying to matching to the penny.
posted by WestCoaster at 12:25 PM on October 27, 2005

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