In 18 years, when a baby born today goes to university to start an undergraduate degree, the total cost of a four-year program for a student living away from home will be $137,013.

Coincidently, last week I also spoke to 250 grade 12 students about why it’s important to start thinking about your financial future today. In that talk, I shared with them the table below, which outlines the yearly high, low, and average costs of going to an undergrad program at a university in Ontario.

As you can see, the cost of going to school today is already high, and while some parents may opt to pay for their children’s education, with rising tuition costs, children are going to have to burden some of that debt – if tey aren’t prepared to manage that debt, it could take them over 20 years to pay it back.  So if you haven’t started talking to the yonug people in your life about why they need to care about managing their money now, isn’t it about time you did?

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The answer is you can’t!  Now I know some of you might say to suck it up, and deprive yourself for the short term in order to reap long term payoffs.  The problem is that humans can’t do this forever, and even a short-term deprivation can be challenging – you need to enjoy life and be happy in order to find the energy to make it through the rough patches.  The saying  all work and no play makes Jack a dull boy definitely comes to mind here.

So what are you to do if you find yourself in this situation?  Well, I was recently in this exact situation and had to make a tough decision.  I was feeling pretty burned out and unhappy, and it was negatively affecting my relationships at work and at home.  I quickly realized that I needed to take a break.  The problem was that I was having problems rationalizing spending money on a vacation when I should be spending money on my debt.  Luckily I spoke to a friend who made a simple point – in the grand scheme of things, how much time will a few hundred dollars set you back?  The answer of course is very little!

Over the course of your life, will $200 make a difference?  Will $500 make a difference?  Chances are that it won’t, but sometimes in the heat of the moment it will feel like it will.  I thought if I didn’t go on vacation and put that $500 towards my debt, I would be better off than if I went on vacation.  Luckily I listened to my friend and realized that $500 will not significantly affect my life – at worst, it would delay my debt repayment by two weeks.

So I booked a trip to San Francisco and came back feeling re-energized!  It was the best investment I could have made with that $500.  My message to you is, regardless of what your situation is, never forget that an occasional small investment in yourself will provide long lasting returns that your budget can’t anticipate or plan for.

And just to brighten your day, this clip from the Simpsons should help you remember this very point.

Click here to view the embedded video.

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When it comes to managing expenses, you have to be able to understand both your current and future expenses – if you don’t understand what your future expenses will look like, how can you ever create a budget to meet them? If you dream of moving out of your mom’s basement, but have no idea how much living on your own costs, how will you afford it?  You need to understand what your future costs will look like so you can start saving today.

One of the areas that people tend to overlook is dating – no, I don’t mean the actual act of dating, but what dating someone with debt looks like.  There’s a good article over at MarketWatch which looks at just this – what happens when two people with debt decide to get married?

Being in love and in hock is no way to go through a marriage, because being in hock might just put the kibosh on the love, particularly in the early years. Debt, it turns out, is a leading cause of family strife during the first few years of marriage, according to Creighton University’s Center for Marriage and Family.

That doesn’t mean debt will necessarily send you to divorce court, but it does mean the accumulation of debt can undermine your marriage and cause the type of discord that can dissolve a marriage.

The article is a little long but makes a good point when it says that couples need to discuss and agree on these two things:

1. Debt philosophy – what is each person’s view on debt, and how do they handle debt?
2. How debt will be used – when you will and will not use debt

Managing your own debt can be challenging enough, so you shouldn’t have to manage someone elses.  Before you decide to make a serious committment to your partner, make sure that you both understand what debt is, and when you should and should not use it.

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I’m a big fan of movies and love watching them on the big screen in the movie theatre. Sure movie prices have gone up over the years, but I still enjoy watching them and consider it a treat to myself whenever I go (remember, you have to enjoy life!). The one thing I stay away from though is the concession stand – those snacks are pricey. But have you ever wondered how much that bag of popcorn costs you over a year?

Last time I was at the movies, I saw that a bag of popcorn sells for $6. If you’re like me, you probably go to the movies once every two weeks (depending on what movies are released). Let’s just assume that you go to the movies twice each month. Now, if you buy a bag of popcorn each time you go to the movies, that’s $12 per month – doesn’t sound like a lot does it? But what happens when you look at the cost of popcorn over a year? Well, that $12 per month turns into $144 – still, that doesn’t sound very expensive does it? Over ten years, that’s $1,440 – do I have your attention yet?

Let’s compare that movie theatre popcorn to the same popcorn you can find in the grocery store.  The grocery store I shop at sells a box of 6 bags for $5.89, or roughly $0.98 per bag. So if we made our own popcorn at home instead of buying it at the theatre, we would spend $1.96 every month, $23.52 each year, and $230.52 every ten years.

With this new found information, ask yourself, does that $6 bag of popcorn sound expensive, knowing that over one year you’ll pay $120 more at the movies than the grocery store, and over ten years you’ll pay almost $1,200 more?

The goal of this isn’t to scare you off of popcorn, or to get you to bring your own popcorn into the movies (most theatres won’t let you bring it in anyway). The goal is to get you to understand, that even something as simple as popcorn can affect your budget if you aren’t watching where you spend money. Next time you are at the movies and are in line to buy some popcorn, ask yourself, “What could I do with an extra $120 this year?“  If you don’t have a good answer, or you are just craving some popcorn, treat yourself, just remember, that bag of popcorn needs to go into your budget!

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What financial advice would you give in the current economy?  Would you tell people to save their money?  Would you tell people that today is a buyers market?  Maybe you’d tell people that they should do nothing and see what happens, otherwise known as the deer caught in headlights syndrome.  Would you give the same advice to a teenager or young adult?

I was recently asked this question, and you know what my response was?  My advice for the current economy is the same advice I’d give in a good economy – understanding the basic principles of financial management and implementing them is good no matter what is going on in the economy.  It doesn’t matter if the economy is doing well, it doesn’t matter if the economy is doing poor, it doesn’t matter if the economy is flat, what matters is that you understand how to track your spendings, how to set financial goals, how to meet them, and how to think about the future.

Are you stuck where to start?  Well, let me break it down for you.

1. If you don’t know how much money you make each week, month, or year, figure it out – you need to know how much money you make to make a budget
2. Know where your money goes – track your expenses, and see where you are spending your money.  Once you start tracking things, you’ll be amazed to see where your money is going – did you know a Starbucks a day costs you over $500 each year?
3. Understand this basic formula: Income – Expenses = Savings.  Whatever money you don’t spend throughout your daily life will be your savings, and these savings are what let you plan for the future.
4. Create financial goals – figure out what you want to buy in the short term (maybe it`s an xbox, a new TV, or some new clothes) and long term (do you want a new car, a condo, a house, a vacation around the world), because our next step is to figure out how to meet these goals.
5. Create a budget and stick with it – now that you know where your money is going, and you`ve figured out what your financial goals are, create a budget to meet these goals and stick to it.
6. Start thinking about the future – do you know at what age you want to retire? Do you know what the future holds? If you`re like me, chances are you don`t, but that doesn`t mean it`s too early to start thinking about the future.  If you start saving even $100 each month for your retirement, and you make use of compound interest, you`ll be amazed how much you can save by the time you want to retire, and who knows, maybe you`ll even be able to retire early.
7. Share your knowledge with others – financial management isn`t a topic that is often found at the dinner table, but that doesn`t mean it doesn`t belong there.  Start a conversation about managing your money with your parents, with your sisters, with your brothers, with your cousins or even with your friends.  Share what you know, and who knows, maybe your family and friends will share some new information with you!

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One useful trick to help you figure out if your spending is within reason or way out of wack is to compare your spending patterns with friends.  Ask your friends how much they spend on food each week, or how much their monthly housing costs are – you might be surprised to find out their answers

But have you ever wondered what the spending habits of people in other countries are?  The New York Times has a very cool tool which will allow you to look at what people in other countries are spending on:

1. Clothing & Footwear
2. Electronics
3. Alcohol & Tobacco
4. Household Goods
5. Recreation

What`s interesting to note is that Canadians spend on average $200 – $400 per capita on electronics, whereas Americans spend $400 – $1,000 per capita, and Norway spends over $1,000 per capita.

Also of interest is that Canadians spend $400 – $1,000 per capita on clothing and footwear, whereas the Americans, Brisith, French, Italians, Swiss, Swedish, and Germans spend over $1,000 per capita.

You can also check out this NYT article on the same subject.

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When creating a budget you need to remember five things:

1. Include all of your expenses into your budget, regardless of whether it is a daily coffee fix or rent
2. Set a realistic budget – your expenses should not be more than your income
3. Remember to pay yourself 10%, and put that money to good use by using compound interest
4. Don’t live beyond your means – if you can only afford to go out for dinner once a week, only go out for dinner once a week
5. Budgets help you meet financial goals, so if you haven’t set any goals, now would be a good time to do it

At the end of the day, a budget is a tool which will help you save and spend your money, but it’s up to you to decide how you want to do it.  Frugality and budgeting are not mutually exclusive, nor are they mutually inclusive; it’s up to you to decide how you want to spend your money.  If you enjoy going out for dinner, then go out for dinner, but do it within your budget.

Just because you are following a budget doesn’t mean you have to be frugal, and just because you are frugal, doesn’t mean you are following a budget.  Living your entire life without enjoying it because you are afraid to spend money will not lead you to happiness.  So my question to you is, are you being frugal, or are you following a sound budget to meet your financial goals?

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