Budgeting Exercise
January 25, 2009
1 Comment
Creating a budget is one of the most important things you can do when it comes to personal financial management. Businesses create budgets every year to help decide where money will be spent, where money will come from, and how much money they need to save. Your own finances are no different. If you don’t plan ahead, even for your daily cup of coffee, you’ll end up broke and living in your mom’s basement.
In chapter 5, I talk about the future cost of life – it’s important to understand how much things will cost, and you need to start planning for big purchases as early as possible.
I just saw this post where Stephanie had a project for school that required her to “walk through the steps of buying and financing a house” – a great exercise to help you start thinking about the future cost of life. Through this exercise, Stephanie started to look at how much her student loans will cost her, and has come to the conclusion that it’s going to be expensive, something which she didn’t realize until she looked into how she was going to finance her life post-graduation.
I wanted to put myself on the standard repayment plan right off the bat, and tackle this debt head-on. I wanted to consolidate my loans into one low rate while rates are dropping. But it looks like just to be able to make the minimums, I’ll have to stay on the graduated repayment plan (where the bills start small and get bigger every year) – with payments of $319 (at first).
Trust me, I’m really disappointed by this. I don’t know why I didn’t run the numbers until now, other than the fact that it’s easier to run them now that I’m done taking out new loans. It’s startling to be this close to repayment and suddenly realize that I will have trouble paying the bills.
My employment is uncertain. I’m going to do the best I can with job applications and internship applications over the next few weeks… but I’ve come to realize that I’ll have to do a lot more than that. I can’t afford anything outside of Ramen to eat and car maintenance, since I’ll be needing that to get to a job. I’ll have to start Compacting again.
I’d thought I was out of the woods, but I’m really, really not. Somewhere deep inside my brain, my current Self is kicking my 17-year-old Self in the pants for getting us into this mess!
Student loans and debt are a necessary part of life, and this post isn’t meant to scare you off of getting an education – it’s a good thing, and well worth the investment. Rather, this post is meant to show you how important it is to think about the future cost of life, and create budgets to meet your future financial goals – if you plan to own a house after graduation, you have to start saving for it now, if you plan to pay-off your student loans as soon as possible, you need to make a game plan to achieve it, if you want to go travel the world, you better start saving today.
Regardless of what you want to do in the future, you need to start thinking about what you want, set those goals, and create budgets that will allow you to meet your goals, but don’t forget that while you are making those budgets, you still need to enjoy life (just ask Elie).
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Adam Goodman is the author of Following The Goods Financial Management for the Young and Ambitious. Throughout his life, Adam never took ownership of his financial knowledge and no one ever sat down with him to explain what it meant to plan for his financial future. Luckily, while at business school, Adam finally learned how to be smart about financial management and he is here to share what he has learned along his journey with you.
Adam's past experience includes owning and operating his own consulting firm, as well as working as a Consultant with Deloitte & Touche. Adam is currently in a sales and marketing role in the telecom industry.
Hi Adam! Thanks for your comments about my post. I totally agree with you – my financial life only started to turn around when I took a cold, hard look at my past, present, and future.
One thing I would like to clear up, though: the reason I’m kicking my 17-year-old self is that I shouldn’t have rushed into college without any idea how to pay for it. I also ended up changing majors, and it’s very unlikely that I’ll pursue employment within the field that my degree is in. In the end, I ended up going back to finish my Bachelor’s just because I could either have $30,000 in student loans and no degree, or $40,000 in loans and a Bachelors. I don’t regret any of it – I just wish I had taken a look at the financial aspects much, much sooner.