Hey! Where’d It All Go?

Note: At Zen College Life, we like to look at how we can squeeze the most out of life. I firmly believe that not having to fret over finance frees you up to make the most of your time, and your life.
This is Part Three of the Take Control of Your Money! Series – a series of practical tips and step-by-step guides to take control of your personal finances so you can focus on getting the most out of life. Click here for Part 1 and Part 2.

A recent Sports Illustrated article revealed a frightening statistic: 78% of NFL players go bankrupt within 3 years of retirement. Not all of these players are the multi-million dollar contract stars who grab the headlines, but with a league minimum salary for rookies of nearly $300,000, it’s still very concerning and surprising that these athletes are losing such large amounts of money. In the article, Raghib “Rocket” Ismail talked about how he never really knew where his money was going when he was playing professional football: “I’d started with this $4 million base salary, but then I looked at my bank statement, and I just went, What the…?” Knowing where your money is coming from (income) and going (outflow) is the next step to mastering your personal finances. This post – Part Three of the Take Control of Your Money! Series – will focus on these two questions: Where’s my money coming from (income)? Where’s it going (outflow)?

We’ll tackle income first. Go back to that piece of paper, Excel spreadsheet, or napkin you used for Part Two and jot down all the money you received last month. For every single dollar that came your way, write down the amount and where it came from. For example, this month I’ve gotten money from my part-time job, cash gifts for Easter, money I made filming a wedding, a rebate for a cell phone, and money my parents owed me for running some errands for them and putting the groceries on my credit card. I record all this in an Excel spreadsheet I’ve created for all my personal finances. I’ll share how I’ve set my personal finances up later, with screenshots and more specifics. For the next month or two, continue to keep this list. It’ll only take you 30 seconds each time you receive money to write down the amount you took in and where it came from.

Each month, look at where your money has been coming from and see if you can find areas where you can pull in more money. For me, maybe I can look to increase the number of hours I work or look for other side jobs like the wedding I filmed. Conversely, if you find that one source of income requires more effort, energy, and sanity than are justified by its rewards, consider getting rid of it. Yes, I just told you to stop making money! Before you send the guys in white lab coats to bring me to the loony bin, please hear me out. Say, for example, that you do some odd jobs on the weekends, maybe babysitting or yard work. If you have one client who causes more stress than the money is worth, drop them and look for another client. Or, if you find that the babysitting or yard work itself is the cause of stress, stop doing it and look for ways that you can better spend your time and energy. I’m not advocating quitting at the first sign of trouble; there will be good days and bad days, but no job is worth it if you dread going every day.

Now that you have a better idea of where your money is coming from, let’s take a look at where it’s going. Personally, I prefer to use my credit and debit cards from Bank of America to pay for stuff. (I want to make a note right now that I don’t buy anything unless I have the cash to pay for it right then and I pay off my balance in full every month. You should be, too!) While each card has its perks (I’m building my credit history with the credit card and my debit card has Keep the Change), the main reason I use them is that they allow me to easily track my spending. I’ve found that with cash or my student card, I lose track of where I’m spending my money. I can monitor my transactions online at Mint or Bank of America or on my iPod touch with either the Mint or Bank of America app.

The great thing about Mint is that it will automatically do everything I’m about to talk about in this paragraph. Just like the income task earlier in this post, grab your writing instrument and jot down where you spent money this month: rent, shopping, eating and going out, food, etc. Do this same exercise for the next month or two, too, and you may be surprised by where your money is ending up. This definitely was an eye-opener for me. Last semester, I noticed that the cash balance on my student card seemed pretty low, around $60; down from the $150 I had on it just 2 months earlier. As I had just added some money to it, I thought there might have been an error in posting those funds. I contacted the proper people, obtained a record of my purchases, and ended up having to pick my jaw up off the floor. Those “occasional” trips to the local deli for their Chicken Madness sandwich – a treat – were occurring more frequently than I remembered. It was then that I decided to switch to using my debit and credit cards, which allow me to easily track my spending.

Just like your sources of income, look at your sources of outflow. Are you spending a lot of money eating out or shopping? Maybe you could cut how much you spend in those areas. In a great post, Ramit over at I Will Teach You To Be Rich talks about how he likes to cut spending: one step at a time. A drastic change is just like an extreme diet; any results you see probably won’t last too long. Getting a hold of your spending is just like a serious effort to lose weight: you gradually change your habits until you reach that ideal balance. If you spend $400/month eating out and want to drop that to $200, don’t do it all at once. There’s a good chance that you’ll end up feeling “starved” for going out and end up splurging the next month. Set a goal to spend $350 next month, then $300, then $250, then $200. If you need to, make those increments smaller. The idea is to slowly but surely cut your spending until it’s where you want it to be.

The revelations you’ll experience from doing these two exercises may take a while to digest. That’s a good thing! You should get in the habit of giving serious thought to questions like: Do I need to make more money to make ends’ meet? Do I want to make more money to reach my savings goals quicker or to spend more on things I like? Is any extra potential income worth the extra time, work, and effort that would be required? Do I really need 3 lattes a day? Can I do without that premium cable package? Take the time you need to evaluate any ideas that pop into your head and figure out the steps you’d need to take next to turn those ideas into reality.

With the picture we just painted of the present, we’ll spend the next post figuring out how we’ll go about creating our personal finances masterpiece. We’ll take the good, leave the bad, and think up new ways of reaching our goal.