Money Management: hard won lessons

Money influences

We imprint our relationship with money based on what we grew up with. For me, I never had money growing up. I wasn’t given an allowance, and while I didn’t lack for anything I needed, I definitely didn’t have designer clothes or a ton of toys either. I wasn’t encouraged or supported in getting a job as a teen, which made it difficult, especially later on. All of these combined into some culture shock when I suddenly found myself responsible for myself financially.

I’ve been living on my own for almost 15 years now. For most of that time, I have struggled with my income. I’ve spent time in homeless shelters or couch surfing with friends. I’ve had part time jobs, been on social assistance, and tried to go to college. Having enough financially to just meet my basic needs seemed a miracle for many years.

Money mistakes

I didn’t know what a budget was, let alone how to make one. I didn’t understand the impact getting a credit card had on my future. Choosing a bank account that fit my life and needs was so confusing. The thought of home ownership, car purchases or any of those big “grown-up” financial decisions was horrifying. The biggest purchase I’d ever made was a computer! Retirement, savings and investment seemed out of reach and insignificant.

The first year I had to do my own taxes was nerve-wracking. Filling out the forms and adding things up, I just prayed I was doing it right. (So far so good!) Luckily I happen to be good with numbers, so I managed ok.

In 15 years, I’ve definitely learned a few things. I understand what a budget is, and I have one. I’ve learned the importance of paying bills on time, not maxing out a credit card, and protecting my information — unfortunately the hard way! I have bought and sold a house, I have bought cars, and I now have savings. But it’s been a long hard road with hard-won lessons.

Money Basics

Money basics for beginners isn’t something you see all the time. Many books, courses and blogs assume a certain familiarity with terms and numbers that not all of us have. That makes it difficult to start financial savings programs, or debt repayment schedules, or even just managing money day-to-day. How can you take charge of your money, if you don’t even understand what the terms mean?!

So lets start with the basics.

Budget your money

Money, finances, cash, and income are all terms for the money you get coming into your home. It’s usually calculated or used monthly, and it can come from many different sources.  A paycheck, a government benefit, child support, a gift, a loan, or from sale of something you owned — these are all sources of money coming in.

Expenses, payment and debt are terms we use to describe the money you give out from your home. These can be for many different reasons, necessary or not. For example, the money you spend to pay your heating bill or housing payment, and what you spend on coffee, alcohol, or clothing, are all expenses. The heat and house payment are necessities — the coffee isn’t. You may think it is, but it isn’t.

A budget is what we use to keep track of the money coming in and the money going out over a certain time period. Most people track monthly, since many bills and government benefits are paid monthly. Some track every pay period, which may be every week or every two weeks, but even then, you’ll have a monthly cycle, because of those monthly bills. It doesn’t matter how often you record these, however. All that matters is that you have some system to keep track of how much money you make and how much you spend.

Credit card money

A credit card is a piece of plastic that represents an account you have with a credit company. The big ones are Visa and Mastercard, with a few other more national, regional, and local ones thrown in. Basically, when you use a credit card, you aren’t actually spending money. You’re telling the store to charge your account with the credit company, and promising to pay it later. The credit company pays on your behalf, then sends you a bill — with an extra charge for the convenience.

Credit cards are useful when you’re looking to make a big purchase, or make a purchase in a system that you aren’t all that trusting in. Credit cards help protect your purchases and your account information, as they often carry a kind of insurance against fraud. They’re also convenient in that they don’t tie up your cash flow. So if you have an inconsistent income — for example, you get income based on commission, so some weeks you may have $$$ and others you get $ — a credit card can help cushion the weeks where your income is lower.  The key to good credit card usage is to pay off your balance as quickly as possible. Carrying a balance with a credit card will cost you money.

Money in the bank

A bank account is a relatively safe and secure place to park your money, so you aren’t carrying around big wads of cash. You deposit your money with a bank — that is, you give the bank your money — and they will give you a record of it. These days most records are on computer, but many places still offer a paper statement. You can then go to the bank anytime you need to, to access your funds, for whatever reason. When you add money to the account, your statement will show a bigger balance (the amount of money in the account), and when you take out money – withdraw – your statement will show a smaller balance.

Now banks don’t hold cash in little boxes with your name on it when you deposit it. They actually use that money to give out to other people, in loans and in interest paid on savings and investments (more about that later). Most of the money in a bank is on paper, not in actual cash. Keeping track of all that paper is probably the most important part of being a banker, and why there are rules about starting and owning banks.

Banks make their profits by charging fees for their services. They will charge a fee to make so many changes to your account, called transactions. They will charge fees for certain kinds of transactions, such as using an automatic teller machine (ATM) or sending money via electronic transfer.  Picking the right kind of account for you is important, because it will minimize how much money you pay to the bank for using their services.

Keep track of your money

The key to good financial management is actually quite simple. Keep track of your money. Know how much you make coming in, from all sources, and know what you spend it on. This is why most financial self-help guides start with the budget. But you don’t even have to be that formal about it. If you simply keep track every single time you use money — either by writing it down, or tracking on an app, or using your bank’s online service — you will soon become very aware of exactly how much money you have, and what you are choosing to do with it.

If you’ve never been aware of your money before, start with this. Go to your bank, or look it up online, and find out how much you have in your bank accounts. Then add up how much cash you have on you. Empty your pockets, your wallet, your purse and your penny savings jars. Add it all up. That’s your starting balance.

Track your money daily

Then get yourself a little notebook, or start digital file on your smart phone. Write down every time you use money. Write down every time you get money from somewhere (anywhere! Even that dime you found on the ground outside your favorite coffee shop!). And write down every time you spend money. Don’t forget that coffee you just got. No judgement or self-censorship allowed. Just write it down somewhere.

Get in the habit of writing down your money habits. As you become aware, you’ll naturally make different and better choices. You’ll become more comfortable with your money. Then you can start to take charge of it, rather than letting it control you.

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