Getting Started with Personal Finance

by Benjamin Andrew

This article addresses basic principles for getting started on your personal finance journey. Below we will go over:

1. Knowing what your income and expenses are.
2. Learning to spend less than you earn.
3. First steps for saving your money.

Know about your income and expenses

Knowledge is power. The first step in personal finance is always to empower yourself by knowing what your personal financial situation is.

In sports, athletes aid themselves with statistics (free-throw percentage, bench press max, mile time, etc). Then, with the knowledge of where they are with their current ability, they can set appropriate goals to improve.

It’s the same idea with personal finance. Once you have a clear picture of how much money you make, where that money comes from, and where that money is spent, you are ready to set financial goals for improvement.

One of the easiest ways to know your personal finance situation is through budgeting. Budgeting is the practice of recording (writing down by hand or digitally) the money that you make and what you spend that money on over a specific period of time, usually over a month.

The simplest way to get started would be to write down in a notebook “April Budget.” On the left side of the sheet of paper, record the money that you make from a job, selling things, or any other forms of income. On the right hand side, write down everything you spend your money on. At the end of the month, total the two sides of income and expenses to see what you have left over.

Do this exercise of keeping a budget and keeping track of what money comes in and out, and then you are ready to set goals! When you are empowered with the knowledge of how much money you make and where it is being spent, you know what changes you can make to meet your goals. This ties perfectly into the next section of spending less than you earn.

Learn to spend less than you earn

Once you have been budgeting for a month or two, you will be able to see if at the end of the month you have money left over (savings), have no money left over, or worst of all, if you are spending more than you earn by taking on debt.

For this article, we will assume you are in the first two categories of either having money left over at the end of the month or breaking even with zero money left over. In either situation, it is good to look over your spending and see if there are things that you’re spending money on where you feel you are wasting. You could ask yourself, “Is eating fast food every day really making me happy? Or would it be better to learn how to cook some simple meals so I can feel healthier and save some money?”

In college, there are a lot of creative ways to try and save money. Buy used textbooks and re-sell them at the end of the semester. Look for student discounts at grocery stores and other retailers. Share a room with a friend at your apartment to save on rent. You can get creative to cut costs in many different ways during college.

I’ve found that it actually feels good to cut costs on things I don’t care about too much. In doing so, I have more money to spend on the things that really matter to me. If you are spending less than you earn, you can save money towards bigger goals like college tuition, a down payment on a car, or any number of things. So once you have cut costs in some areas and are saving money every month, now what?

You’re saving money, now what?

Now that you’ve balanced your budget, you hopefully have some money left over at the end of each month that you can save. Even if there is only $5 per month left over, it’s important to know what to do with it!

The first place I would suggest putting your extra money is in a savings account at a bank. Getting a bank account is an important step in personal finance, and it would be something worth consulting a parent or trusted adult about.

The two most basic types of accounts at a bank are a checking account and a savings account. A checking account is for easy access to your money. You can have paychecks deposited there, and you can spend the money in this account with what is called a debit card. A savings account is more limited in the amount of times you can move the money each month. In exchange for this limited mobility, banks will usually pay you a small percentage of interest each month for your savings account. You can find more information on choosing a bank here.

The first place you will want to put your extra money each month is in a savings account. The money in your savings account is set aside from your everyday expenses. It is a good idea to have some money set aside for emergencies. What if you have a medical need or you need to repair some electronics for school? Having cash set aside for emergencies can really save you a lot of trouble.

Once you have some money set aside for emergencies, you can save for whatever you want! A new pair of shoes, a weekend trip with friends … the sky’s the limit! Being able to manage your personal finances is all about empowering yourself and your families to do the things you care most about. You can do it!