Living On Your Own

Making it on your own takes more than determination. It takes a plan. Planning may not sound like much fun, but it's the only way you'll have the freedom to really take advantage of a new situation. This step-by-step guide can help you get started.

 Step 1: Discover How Much You Can Spend
 Step 2: Where Does My Money Go?
 Step 3: Set Up Your Budget
 Step 4: Test Your Budget
 Step 5: Spend Less
 Step 6: Choose The Right Bank
 Step 7: Avoid Credit



Step 1: Discover How Much You Can Spend
First, find out in advance how much money you have to spend and for how long you have to budget it. This might mean budgeting for a six-month internship or for a four-year trade school.

Take the duration of time into account. Then add up all your money sources, including income you earn (full-time and part-time), contributions from relatives (if any), withdrawals from savings (if any), and so on. Don't leave anything out. What you are calculating is your available money after all deductions (such as taxes) have been taken out. If you're not sure what your income after deductions will be from the place you work, ask for their help.

Once you know how much you have available to spend for the whole time you're away, divide it by the number of weeks you'll be there. This is the maximum dollar amount you can spend each week — on everything. Let's call this amount your weekly budget.

Some weeks, you'll spend more than your weekly budget calls for, some weeks less. And the total of all the weekly budgets can never exceed the total money you have available.

  

Step 2: Where Does My Money Go?
A book here. A CD there. A weekend away. Dinner on Thursday. Money has a way of disappearing. To see where it goes, buy a little notebook, and, for a one-week period, write down everything you spend by item. Everything.

Ideally, you should record your spending at the time you spend it. This may seem like a pain, but you need to find out your spending patterns before you set up your budget.

Spend as you normally would, but not wastefully. At the end of the week, figure out what happened in spending categories, meaning how much you spent on bills or food or extras.

  

Step 3: Set Up Your Budget
Say you are making a budget for one month and you have a total amount of $1200. You budget $600 for your rent; $200 for your bills (estimate generously—better to have extra left over than to fall short); $200 on food; and $200 for clothes and luxuries.

Sure, this budget is tight. Not much room for extras. But that's why you're making a budget.

Next define your spending categories and set realistic weekly spending targets for each one. Don't allocate spending $80 to food if you know you really use $100. Try to predict expenses you'll be having that might not have occurred in Step 2. Create categories that make sense for you.

Then add up all the categories that have dollar amounts to calculate your weekly budget.

  

Step 4: Test Your Budget
Test your new budget by comparing what you spent in a week (the actual amount you spent for the week) with the category target (the estimated amount you calculated before the week began).

Still have that little notebook? This time give each category its own page. As the week progresses, write down your spending on the corresponding page. At the end of each week, add up each page and compare page totals to the budget you set up in step 3.

If you went over target in a particular category, maybe the budget was too low, or maybe you need to reduce your spending. If you spent very little (or nothing) in a category, learn from that, too. If you exceeded your weekly budget, you'll probably have to cut back in future weeks to make up for overspending this week.

Hint: Monitor your spending using the "notebook method" each week that you live on your own. If you do nothing else each week, compare your total actual spending for the week (the total of all your individual category spending totals) with your weekly budget. Be good about doing it every week for awhile, or you'll never really learn if your budget works.

  

Step 5: Spend Less
If your spending is consistently more than your weekly budget, no need to panic. Just think about what you can cut a bit. Or cutting a little across the board to avoid a big cut in any one area.

Here are some ideas for tightening your financial belt. They may make life seem less fun temporarily, but the effects on your bank account will make it worthwhile.

• Food:

  •		Share expenses with your roommate.
  •		Use leftovers; waste nothing.
  •		Buy in bulk — it's cheaper and lasts longer.
  •		Cut out frozen foods; cook from scratch.
  •		Never shop when you're hungry.
  •		Shop alone and shop quickly.
  •		Cut out impulse purchases; no snacks.

• Fun:

  •		Watch TV, rent movies, or play games at home instead of going out.
  •		Borrow videos and games from your friends.
  •		Ask for student discounts.
  •		Use the public library liberally (they've got DVDs and Web access these days!).
  •		Split a restaurant meal with a friend.
  •		Do what the town has to offer — museums, zoos, parks, galleries, waterfront, etc.

• Clothes:

  •		Avoid the mall and impulse buying.
  •		Wear what you've got; hey, it's better than you think.
  •		If you have to buy something, keep an eye out for sales or discount stores.

• Transportation:

  •		Share car rides.
  •		Use public transportation when available.
  •		Go by bicycle or on foot.
  •		Combine errands for maximum efficiency.

• Phone:

  •		Make sure your service is right for your needs. Cut any extras.
  •		Cell phone + land line? Do you really need both?
  •		Switch services if there's no added cost and clear savings.

  

Step 6: Choose Your Bank
Choosing a bank shouldn't be intimidating, but be sure to pick one that's right for you:

1. Convenience:
   Banking "convenience" means different things to different people. Think about how you'll use the bank: do you make a lot of deposits and withdrawals in person? Or does the ATM work for you? Does the bank have a good online service? Are there branches nearby where you work or live? To know what it means to you, think through how you plan to do business with the bank. If you're the type who needs to make deposits and withdrawals in person, better choose a bank with a branch close and convenient to where you live or work. If you're confident banking at an ATM or online, then branch location shouldn't matter too much.



2. Check Out the Checking:
   Once you've chosen the best bank for you, start by opening a checking account. Ask customer service to guide you to the best type for you. Ideally, you want to choose the kind of account (and bank) that won't penalize you for a low balance.
   
   Make sure to ask about per-check fees, overdraft fees, minimum-monthly fees, ATM fees, check-printing fees, and minimum-balance fees. Usually, the checking account with the lowest fees is the best one. If you can get your checks printed outside the bank's system, do it. You're sure to save.
   
   Hint: Try to get overdraft protection on your checking account of $500 or so in case you bounce a check by mistake. It'll save you the bounced check fee, which can cost you $20 or more per check. Ouch.



3. Fees: If you've narrowed down your choice to two banks, simply line up their fee schedules side by side, and compare them. If there's a significant difference, choose the lower-priced bank.
   
   Hint: Checking accounts and ATM fees are usually the places where fees come into play most. Be sure to fully understand how using an ATM out of the bank's network will affect you. Checking accounts are breeding grounds for fees for everything from ATM usage to a fee every time you write a check. Again, carefully compare checking fees between two banks.
   
   Those $1 or $1.50 per-transaction fees add up!

  

Step 7: Avoid Credit
Chances are, the bank you choose will ask you if you'd like a credit card. But as visions of iPods or new shoes dance through your head, resist the urge, or take the card but don't carry it with you every day.

• The "pros" of credit cards:

  •		You'll be able to buy things on the spot, even if you don't happen to have cash. This saves a trip to your bank or ATM.
  •		You get a "loan" on purchases for about 25 days before you start getting charged interest.
  •		You get some purchase protection. For example, you can delete purchases from your bill if they turn out to be unsatisfactory, if you follow the rules.
  •		You have limited liability if your card is lost or stolen.

• The "cons" of credit cards:

  •		Credit cards can be budget-wreckers because they make purchasing things you want (but can't afford) too easy.
  •		You get a "loan" on purchases for about 25 days before you start getting charged interest.
  •		If you run up a big balance, you could find yourself needing to spend every cent paying it off. Sometimes, paying off a balance can be next to impossible if all you're able to afford is the minimum payment. That's because a large part of the minimum goes to paying the interest the bank is charging, and not to paying off your balance. This is not fun.
  •		If you're under 18, your parents could be responsible for your bill. Imagine their reaction when they find out you ran up a $3000 balance!

If you're just starting out and have limited funds, credit cards are usally best avoided altogether. It's just too easy to get into trouble by using them to buy things you can't afford, to pay off bills, or to get into a serious financial hole. If you get one for emergencies only, leave it at home. In your wallet it's too easy to pull it out.