Have you noticed how none of the adult life skills are taught in school? They will teach you how to calculate other people’s money so you can earn more, but, at the end of the day, you don’t know where YOUR money is going. You take a 500 Taka bill out of your wallet; it somehow vanishes in a span of 6 hours but you have nothing to show for it. 

You need financial intelligence in order to understand where and why you are spending it. The best path towards any intelligence is knowledge. You gain that knowledge through collecting information from your spending habit.

There are a number of ways that need to work together in order to maintain financial stability. There are bigger things than just tracking your personal expenses, it requires predicting what kind of expenses you might be having in the future like date nights or buying mother’s day gifts (IFRS calls them Liabilities)

There is also the very small amount of money you give to friends as loans, sudden bursts of charitable expenses, and chocolates for your niece that come out of a fixed amount but usually slip the mind.

This is why everyone needs a worksheet where they can first track their expenses before moving on to categorizing them, and planning to can save or change their financial habits.

Tracking Your Incomings and Outgoings

There are four sources of income a student usually has,

1. Pocket-money

2. Part-time Job/Home tutor fees

3. Entrepreneurship/Other investments

4. Scholarships. 

One person can have one or more sources of income. Even though they end up in a single wallet, it’s best to always mention the sources of income when tracking your finances.

When it comes to expenses, some use their own vehicle so they have fuel and maintenance cost instead of rickshaw/bus fare cost; some prefer not to smoke so they don’t have any expense in cigarettes at all. That’s why it’s best to write down the cause of expense and the amount with a date for the first month, no matter how insignificant it is, write it down. Use either a google sheet on your phone or an itty bitty notepad that you can carry around with you.

Categorizing Your Incomings and Outgoings

You don’t need to be a financial accountant to do this on your own. The incoming money is called “the income” and the outgoing money is called “the expenses”. The basic expenses of a student can be sub-categorized as – transportation, food, stationery & books, entertainment (Cigarette, Movies, Day out), Internet bills, expenses related to a hobby (paint, guitar strings). The example can vary from person to person. After tracking your expenses you can see which expenses are happening repeatedly; for example transportation, food and cellphone balance recharge costs happen every day. From next month, you can categorize some expenses to summarize your google sheet like this (see image below).

The necessity of categorizing has both financial and psychological aspects. Throughout the time when you see that the expenses are sometimes crossing your income, you feel frustrated and think you will never save money like this. Well, you are right. But, being able to see where money is coming from and where it’s going, you can make decisions where you need to cut down and where you need to work harder to generate more income. For example, you can take a bus instead of taking a rickshaw, find a restaurant that fits your budget or learn to cook, find freelance work to generate more income.  

Savings & Investments

People expect to save money after paying all the expenses & liabilities and then save money at the end of the month. Funnily, by the middle of the month they are already running low on cash, thinking they will do it next month.

The trick is, separating the savings money as soon as income arrives. A good practice would be starting from saving 10% of your total income at the beginning of the month and forget about touching that money until your financial goal is achieved. You will feel you are moving  through your monthly expenses, spending guilt free. It will definitely be a little difficult at first, but good things don’t happen easily. In some time, you will adjust to it. 

If there are any sudden bursts of income, like grandma secretly gave you some money, there was a bonus with the tuition fee or prize money from winning a competition – save a portion of it with your existing savings, then use the rest however you want. 

When your savings reach the amount you were targeting, you can start investing money from there.

Take investment advice from real investors, not from employees who work for investors.

How Money Management Really Works

None of these methods work individually. If you just track money, don’t categorize, you won’t be able to recognize if you are prioritising your desires or your needs. Consequently, you won’t be able to make any lasting decision to change your spending behavior when you don’t know what your spending behaviour really is like. You must simultaneously categorize and write down your cash in & out flow, find new ways to increase income and manage your expenses. 

But, imagine, by the time a student graduates, they will have 4 or more years worth of savings, a fully functional money management system with awareness of their financial rights and responsibilities. The huge gap in employment issues in Bangladesh can be shut if students can employ themselves with their own money right after they graduate. 

Financial stability comes with financial awareness (tracking, categorizing and changing financial habits). If financial awareness is cultivated at a young age, it can pay off for the rest of a person’s life.