When I was 7 years old, my sister gave me a bank for Christmas. It was just what I had asked for: blue metal, with a real combination lock. It was a huge upgrade from the jar of pennies I had stashed under my bed. I thought that little blue bank was the foundation on which I would build my financial empire. Of course, "empire" is stretching it a bit. But I did think that if I saved a lot of money in my bank (maybe even $100!) I could put myself through college and buy a nice car. Hey, I was 7. In a few years I realized finances were a bit more complicated than that. My parents set a good example for me, but by the time I went to college (which, by the way, was not paid for with my blue bank), I knew I had to be responsible for managing my own money. Once you get to college, you'll have to manage your money, too. Fortunately, it's not hard to do. There are really just three key areas you need to understand to be a good money manager: checking accounts, budgets and credit cards. Check It Out
Opening a checking account is easy. Checking accounts are available with many different features, and these may vary from bank to bank. Find the package that meets your needs, and you'll have smooth sailing. First, find out how much money different banks require you to deposit in order to open an account. Also, ask whether you're required to maintain a monthly minimum balance. If you are, be confident you can keep that $200, or whatever, in your account; you'll have to pay the bank a small fee if you don't. Then, compare service and transaction charges. That's right, the bank might charge you a couple of dollars for talking to a teller instead of using the ATM. Some banks will simply add a "service charge" to your bank statement every month. These charges might look small on paper, but they add up over the course of a few months. And you don't want to pay an arm and a leg for a service another bank provides for free. You'll also receive a debit card, which you can use to get cash at a cash machine or pay for groceries, clothes or online goodies. But be careful: this card takes money straight out of your checking account, and you'll get yourself into trouble if you spend what you don't have. That money you're spending is still your money, and it will run out if you're not careful. That means you have to keep track of your money by balancing your checkbook. Even severely math-challenged people (like me, for example) can balance their checkbooks, so have no fear. The first step is to keep track of spending. Hold on to receipts from debit purchases or ATM withdraws. Keep up with your check register—that's the little booklet-thingy you threw in your dresser drawer. Record every check you write, every cash or electronic withdrawal and every deposit you make. When your bank statement arrives you'll be prepared to make sure your register balance matches the bank's balance. Just follow the directions on the bank statement and you'll be in good shape. What, Me Budget?
If you can balance your checkbook, it'll be a breeze for you to balance your budget. Budgeting basically means figuring out how to live on the money you have—no more, hopefully less. To get a good estimate of your financial habits, track your spending for a month. Keep tabs on both your income and your expenses. Income includes take-home pay from any part-time jobs you have, cash your folks send you when you're desperate, money you find between the couch cushions and so on. Expenses are going to fall into three main categories: regular, irregular and long-term. Regular expenses are those you have all the time, like snacks, toiletries, entertainment, phone bills and tithing. Irregular expenses are things you only have to pay for once in a while, like books, car repairs and medical bills. Long-term expenditures, or budgeting goals, might include a trip home or a car. Once you've got a good idea of how much money you need to meet your expenses in a month, subtract that amount from your monthly income. If you've got a positive balance, you're in good shape. If you spend more than you make, well, you do the math. You'll need to make some changes. If you want to increase your income, ask for a raise, work more hours or seek financial aid. But it's much easier to try to decrease your expenses. You can reduce expenses by eating out less, clipping coupons and limiting those long-distance phone calls. You get the idea. Money management requires discipline, but in the long run it will save you a lot of financial headaches. Gimme Some Credit
Credit cards aren't necessarily bad things, but they have gotten a lot of people into some serious financial messes. Again, it's a matter of discipline. If you're responsible with cash, you can probably handle credit. Just remember: everything that glitters is not gold (or platinum). If you decide to start packing plastic, compare cards to see which one will work best for you. Things to consider are annual fees (you don't want one), grace periods (you do want one), interest rates (look for a low one, like under 15 percent) and card-member perks (like travel discounts). Look for the best deal—you're bound to get lots of offers, so make an informed choice. Read the fine print, and remember that a deal that seems too amazing to be true probably is. Some credit card companies will try to lure you with a rock-bottom interest rate, like 4.9 percent. But the little tiny writing at the bottom of the offer might tell you that the 4.9 percent rate is only good for a few months, after which the interest rate will jump to 18 or 20 percent. Say no to these fast. You may want to talk to your parents and ask them to recommend a reputable credit card company. If they don't think you're ready to handle credit, listen to them. This is a case where it's definitely better to be safe than sorry. And keep in mind that it's not necessary to have more than one card, especially if you're new to the credit card world. If you really think you can handle a card, guard it carefully. Don't give anyone else permission to sign on your account. No one. Not your roommate, not your sister, not your pet iguana. Carry the card service's 800 number with you in case the card is lost or stolen—and report it right away if it is. It's best to use your card only for emergencies, like immediate repairs on a broken-down car. But be careful about charging more than you can pay over the course of a few months. The longer you take to pay off a credit card bill, the more interest you'll accumulate. The credit card bill will say you only have to make a "minimum payment," but you'd be smart to pay off the whole thing, or as much as you can each month. Everyone has to deal with money matters, so start practicing now. The sooner you become a smart money manager, the better off you'll be. Copyright © 2004 Christianity Today. Click for reprint information.
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