Considering the lack of personal finance education that most of us receive growing up, it’s no mystery that the subject can be daunting to many of us in college. Taxes, budgeting, savings and investments are just some of the scary topics that young people struggle with. “Why didn’t they teach me this in school?” they ask. In fact, the problems of personal finance are simple enough to reduce to a straightforward extension of arithmetic from our common curricula. Yet, it’s this reason that confounds us the most.
And that, my fellow Trojans, is the rub.
So, considering this, I have been asked by the lovely editors at Annenberg Media to provide this biweekly column. I’m Niven Jayanthi, and I study business administration and mathematics here at USC. “In the Money” is a special, zero-unit course to provide a holistic introduction to the trivial, yet not-so-trivial problems of personal finance.
This week I believe it would be best to begin with personal accounting, perhaps the most fundamental topic there is. First, let me take this opportunity to tell you this: money is pretty simple. The concepts of basic finance are easy enough and anyone can save a great deal of time, stress, and money with the proper planning and understanding of these concepts.
So, personal accounting.
Budgeting is one of the central activities of managerial accounting, but more importantly every responsible person budgets in some way or another.
However you keep track of your finances doesn’t matter - it could be a written journal, a spreadsheet, bulletin board, you name it. But in any case, it’s best to follow this general format:
1. Write down everything that you buy or spend money on, separate them by type, and then see how important each one was in comparison to the others.
2. List all the money you make from working, note any other cash inflows you have, and document how regularly they might occur. I would, for instance, list all of my paycheck money, followed by any income from scholarships or other earned gifts. An “earned” gift, in this case, is money that comes from a source that you are not familial with or otherwise bound to personally, and that you had to compete in some sense to gain.
3. Record and date all money that you borrowed and needs to be paid back. It’s important to keep track of this to retain people’s trust, and also keep the mafia off of your back.
4. List money you receive as an unearned gift, meaning money that you did not expend effort to compete for. This includes contributions made by parents and family members. Unless you have to pay them back, this money is essentially your trusted person’s (parents, family) investment in you as a person. This money differs from scholarships and other “earned” gifts because there was no competition from outside sources involved, even if the scholarship is also an investment in you as a person.
The subtle difference between “earned” versus “unearned” gifts is whether or not you got the gift money based solely on your merits versus having got the gift money through some personal connection. This distinction is important in order to be able to forecast how much money you will be able to earn in the future, and if you have to ask for anything more from those that may support you financially.
Here’s an example of a budget:
A budget is the key document to keep a healthy financial situation for yourself and avoid coming up short in the future. It’s the same organizational skills that keep your grades up, or put your schedule in order. All of these skills and practical tools are already within you and it is just a matter of taking the moment to apply them. I assure you that this exact activity is the same thing that controllers for the biggest companies and governments in the world do to maintain their financial health.
So, go and begin the journey to financial literacy and personal financial health! Thank you for reading, stay tuned for the next article, and Fight On!