From Savings to Credit
by Joanne Barnard
Whether you realize it or not, you already have a financial philosophy, a method of earning and spending. During high school you can uncover your current habits, tape into the tools for organizing money, and start a little BS (budgeting and savings).
Understanding your methodology is a significant step towards your financial foundation.
A good start is to track your money. This can be done on a piece of paper, a computer spreadsheet, or financial software. A years worth of data would be great, yet even a few months can reveal trends.
Label your revenue and expenses by categories (Table 1&2). Examples for revenue would be gifts, allowance, or wages. Possible categories for expenses would be savings, clothing, personal care, food, entertainment, and transportation.
Add up what you spent on a particular category, divide by your total spending, and times the result by 100 (Table 3). This will give you the percent you spent on that category.
Also subtract your total spending from your income. If your spending exceeds your income,adjust your spending. If you make more, you will probably spend more. In other words, if you currently spend more than you make, getting a higher paying job will not make you a better money manager.
First stop is savings. It is never too early to start saving. Get in the habit of setting a portion of your income aside (30-50%) for the future. Do this when it is received, either in a container at home, or open a savings account.
If you are shocked by 50% ,discuss this with your parents. They could give you an earful on the money they set aside for savings, retirement, education, and taxes.
When you have steady income from a job, open a checking account.
Learn how to track your money on line. Balance your account with financial software and in the check book provided. Having a hard copy to compare against the bank, insures accuracy. In turn, you can create and maintain a budget. These are skills you will need to stay out of financial trouble.
Connect your checking account with the savings account you opened in the last section. Using the institutions online banking, you can transfer money from your checking to your savings so it can be off the proverbial spending table.
Checking accounts usually come with a debit card. Debit cards offer the convenience of access to your money without having to carry cash and a record of your spending is kept by the bank. You can copy and paste these transactions into a spreadsheet, or download them to your financial software (Already set up for creating a budget and planning for the future).
Understand the over draft protection services. These can be in the form of credit or “courtesy fees”. For the ‘courtesy’ of not being rejected at checkout, you pay a fee for allowing the transaction to go through. Some banks allow you to link your debit card to a savings account (money is transferred to cover the transaction).
Another alternative is to sign up for email or text message notices when your balance is low.
Consumer credit is trust in a buyer’s ability and intention to fulfill financial obligations. A consumer buys a product or enters into an arrangement whereby they get resources now and agree to pay later or over time. The institution that offers the product/arrangement charges a fee/interest for the use of said product.
If you decide to use a credit card, demonstrate your “ability and intention to fulfill you obligation” by getting one card only and pay the balance monthly.
Differentiate between those things that should be saved for and those items that are reasonable to finance through credit. It is reasonable to carry a balance on a credit card for one time purchases like a fridge, washer/dryer, or to replace a faulty water heater. Beyond that, you are teetering on the chasm of an unending cycle of credit card debt.
Take the time now, before you are on your own, to uncover your habits, research financially responsible methods, and incorporate those methods in your daily life.
On Thursday, March 3, from 3 to 6 p.m., there is a “Job and Career Fair” for 14 to 21 years old at Twin Peaks Mall in the former location of J. C. Penney (1250 South Hover Road).