Old School Finances

In the days of graduate school my approach to finances was a simple one. Graduate school for me was funded by stipend and finances were most definitely limited. Managing them to ensure the funds lasted through the month was essential. I used the envelope method. I simply had three envelopes in my bedside table. One was for the bills: electric, water, rent, and phone. Another was for gas, groceries, toiletries, and health needs. The last envelope held what was left over and was my available cash for everything else like entertainment, clothing, car repairs, and emergencies. The system worked great. I always was able to pay my bills and had food and gas throughout the month.

I think today many of us should adopt a modified version of the envelope method. We should all plan our spending at the beginning of the month rather than letting our spending plan us. The technologically savvy can set up computerized financial files with the allowed amounts listed and spending tracked categorically.

Somehow, I still like the envelope method best. It seems easier. When the envelope is empty, there is no more spending in that category. For us visual folks, a quick peak tells how much is left. I would however add a new envelope, and it would be labeled "Monthly Investment". We should all be putting a little aside each month for our future financial health.

It is always best to make compound interest work for you rather than them! Think twice before buying on credit. Ask yourself, "Is this a want or a need?' Then ask, "Can it wait until I can pay cash?" Then finally, know what it is going to cost you in the long run and be sure it is worth it.

Written by Sandy Davidson, LISW-CP, CFIC, The Debt Coach, Real Solutions for America's Debt Habit