Watch your cash

Oct. 4, 2009 — We’re young. We’ve got love to mess around with, time to screw up, and money to lose. Right? We wish. Here’s how to get your life back.

Juniors Aden Adhanom and Lidia Gebremichael sit with empty Burger King trays at the Indiana Memorial Union, reminiscing about sophomore year, when they ate out nearly every day.

They’re now trying to cut back, but the cost still hurts.

“It makes me mad that I’m spending all this money,” Adhanom says. “Though it’s not a lot, it could be something. I could have saved up for something else.”

WHY POOR SPENDING HABITS DEVELOP

Most students are inexperienced with money.

“It’s really the first time they are out on their own and having to make a lot of spending decisions on their own,” personal finance lecturer Doug McCoy said.
Some students value the short term over the long term. Many call this the “Latte Effect,” McCoy said.

“It’s a lot of little things we do every day: habits that cause us to spend beyond our means.”

It can also be classified as the “Pancake Effect.” “You just keep stacking up and stacking up and it’s amazing how much money it is,” he said.

WAYS TO COMBAT SPENDING FOR THE FINANCIALLY NAIVE

Play your cards. Check over your credit card and debit card statements and create a monthly budget, McCoy says.

The monthly budget should include income and two expense categories — fixed, or overhead, costs like rent and utilities, and variable expenses like food and clothing.

Compare your projected budget to what spending actually occurrs. Focus on the surprises.

“What was the variance?” McCoy asked. “It’s very much like dieting: It’s about discipline and very little about rocket science.”

Being unfaithful to a budget can signal danger, economics professor James Self said.

“Think about your budget and your priorities in a very realistic way, and stick to it. The first time you deviate from it, it always makes the next time easier,” Self said.

Budgeting your funds wisely and proficiently goes beyond monetary savings. It provides mental gain.

“It’s the positive, psychological benefits — the freedom, the sense of control that one has versus the anxiety and sadness that can come from being out of control,” he says. “It’s that you understand where you are, what you need to do to continue to improve your situation. And there is a lot of peace of mind to that.”