Where Money Should Go

Nov 12, 1998 |Todd Temple

For college students short on cash (is there another type?) there's one sure way to financial success — and it's not the lottery.

Ever dream of winning the lottery? I do. Haven't won yet, but if that day should come, I'm ready. Here's my plan: I'll get a house on the beach—nothing fancy, just something with waves in the front yard. And I'll buy a newer car. Not a brand new one, just something whose birthdate is more recent than my diploma. (Even when I'm playing with dream money I can't fathom wasting thousands for that ephemeral new-car smell.)

I'll use some of my winnings to send generous support checks to all my friends who grew up to be missionaries. Maybe then they'd write me personal notes at the bottoms of their photocopied support letters. I'd like being more than a "prayer partner." And I'll buy 30 pairs of socks and 30 pairs of underwear so I can go a month between laundry trips. Actually, I can do that now, but it requires wearing clothes into the shower and digging lint clogs from the drain.

Yep, I've got big plans for my lucky jackpot. But I don't think I'll get a chance to spend it, seeing as how the odds of winning are so slim. And since I've never bought a lottery ticket and have no plans to start, they tell me my odds are even slimmer. But it's still fun to dream.

I don't mind telling you my lottery fantasy because I'm guessing that you have one too. Most people do. We're good at coming up with plans for money we don't have. What's strange is that we can be so good with planning our fantasy finances yet so unprepared to handle the real stuff. That's a problem, because our financial survival and success don't come from sweepstakes or scratchers. Ed McMahon is NOT at the door.

Money Goes Where You Tell It

In last month's column, I told you that there are basically just four things you can do with money: get, give, save, spend. Then I showed you a bonehead-easy money management system that allows you to track your money as it frolics through these four pastimes. If you use this system, you'll always know where your money is, and how it's being used. That's a good thing, but it's really just bookkeeping, and that's not enough. You need a budget.

Here's why: Your bookkeeping tells you what you are doing with your money. A budget tells you what you should do. And what should you be doing with your money? That's easy: You should be using it to get from where you are to where you want to be. In that sense, a budget is just like any other plan: study plan, career plan, marriage plan. It's just that this one has more numbers in it.

Like any plan, a budget is based on your priorities. Here are my priorities right now: (1) Serve God. (2) Prepare for my future. (3) Survive now so I can have a future. Sure, there are lots of other important things in my life, but they fit into one of these three big ones. So it figures that my money should go to each of these priorities:

Priority #1: Serve God by giving Him the first share of my money. (Which is actually just giving it back because it's His money anyway, but let's not go there now.)

Priority #2: Prepare for my future by setting aside money to fund it. In my case, that means saving for a house, investing in my business, and being ready to afford a family. (I'm thinking of buying one.)

Priority #3: Survive now by spending money for food, shelter, clothes, etc.—and buying some fun stuff if I can afford it after the other priorities have been met.

How about you? If you were to boil it all down, what's most important to you? When you've answered that question, your budget is halfway there. The next step is to put some numbers next to the words. If you were out of school, in a job that pays a steady income, living a "normal" life with its predictable expenses, you could assign actual dollar amounts to your priorities. But let's face it: You're not "normal." Chances are you have wild fluctuations in your income and expenses—feasting in summer, frugal in winter, famished when the new term starts and you're buying books instead of burgers and bagels. In your case, it's best to set aside the dollar figures for now. Work with percentages instead.

If your priorities were something like mine, here's how they might look when you've added percentages to them:

Priority #1: Serve God by giving 10 percent

Priority #2: Prepare for the future by saving 20 percent

Priority #3: Survive by spending what's left (70 percent)

How do you come up with the percentages? Well, if you're a Christian the first one is easy: The Bible is big on the idea of giving, and 10 percent is a pretty popular starting place. The other figures are harder to come by. You can't just decide to live on some ideal percentage of your income: Rent checks and gas bills and Burger King clerks are paid in hard currency, not friendly percentages ("Whopper with fries and drink: 1.5 percent"). That kind of spending only works for tips and taxes. What you need is an accurate accounting of your real life income and expenses.

Wait a minute. You've got that. Your money management system shows you what happens to every dollar you get. Add up a few month's worth of your survival expenses (the things you need)—you'll find them listed in your SPEND account ledger. Then come up with a monthly average. Do the same thing with your income—the figures are recorded in your GET ledger. Now divide your average income by your average expenses: That's the percentage of your income that's keeping you alive. Here's an example:

Average Monthly Survival Expenses: $900

Average Monthly Income: ÷ $1000

= Total you spend on survival (90 percent)

Based on this example, you're in trouble: After 10 percent goes back to God and 90 percent goes toward keeping you alive, you're tapped out. That leaves you with just three choices: (1) Earn more. (2) Spend less. (3) Rearrange your priorities. But at least you know your choices. If you don't have a budget and a money management system, you'll be wondering where all your money goes ... and trying to figure out why each new month is no better than the last one.

Now you can see why you need both a budget and a way to track your money. The budget provides a plan for getting you where you want to go. The money management system provides the numbers you need to establish that plan. And it gives you feedback so you'll know if your plan is working.

So give it a try. Write down your priorities. Then direct a portion of your income to each. Use your money management system to help you come up with realistic percentages, and as your priorities and finances change, alter your budget to fit. It's better than scraping those lottery scratchers, and your odds of winning are as close as they come to a sure thing.

Copyright © 1998 Todd Temple. All rights reserved.

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