Young & In Debt

In case you didn't notice, USAToday is running a six-week series on Young & In Debt, featuring 20-somethings' financial situation, the way they manage their money, and advices on how to cope with debt. The series started in the week of November 20th and already have a couple of publications. Though I am not in my 20's any more, I found the articles are educational and lot of things can still be learned from those young and in debt.

The article published on the Thanksgiving day (November 24th) discussed how budgeting can help young people get their finance back on track. An accompanied survey of 810 adults between the ages of 22 and 29 revealed how young people manage their financial matters nowadays: 

The above survey shows that 75% of the survey participants considered themselves good or fair in managing their money. However, a separate study conducted by Experian over 3 million credit card records of people in the 20's found that between 2001 and 2006, the number of late payments and the size of debt were on the rise, despite fewer people were in debt. To argue how a good budget is essential to reducing debt, the article used the following analogy:

For anyone to say, 'I don't have a budget' or 'I don't want to bother' is like going to play professional football but saying you don't want to learn how to block …… You'll get killed on the field.

Thus, having a budget and sticking to it are the best ways to get your spending under control and all of these can begin with writing down how money were spent, or possibly wasted, the article said. In addition, the article also offered some suggestions on managing spendings:

• Track what you spend over time
• Pay bills online
• Use only a debt card
• Avoid ATM withdraws
• Avoid credit cards
• Cut spending by 10%
• Payoff high-interest credit card debt
• Increasing savings by 10%

Despite my own different opinions on the use of credit cards and debt cards (I never use debt cards and charge almost everything with credit cards instead for a) easy expense tracking; b) cash backs), I agree that tracking spending activities month after month is the first step of budgeting, which eventually will lead to a well-managed personal finance. In the past, I never knew exactly how much we have spent each month on groceries, gasoline, or dining out, except fixed items such as mortgage, utilities, and child care. I didn't do any planning on purchases (except our house) and never had a special savings account for big ticket items. The spendings were sometimes out of control. I started to write down every penny we spent in an Excel spreadsheet in August shortly after I launched this Diary and came up with a categorized monthly expense report since then to analyze our spending patterns. Though I didn't have a budget yet, tracking spendings for the past three months help me get a picture of where our money went. After all, if I have no idea how I spend money, there's no way I can figure out what and how much to cut.

Click here to read the full article on USAToday and here to see what's coming.

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