Distinguish between wants and needs

For most people, this is by far the most difficult part of learning to properly manage their finances. A need is something that is important for survival: food, shelter or clothing. A want is something we desire beyond our needs. While our needs can be met, our wants can be limitless!

You know what I am talking about. For example, if you can barely afford to make your rent payment each month and you’re ready to spend money on a new Playstation 3, you may need to reassess your priorities. After all, your new Playstation 3 won’t be so hot if you have no place to play it.

You must determine the distinction between your needs and wants. Something that is a necessity to one person may be a luxury to another. You certainly need to eat but do you need to eat out? If you need to eat out, do you need to eat in expensive restaurants?

Consider investing in groceries. You do not have to be a gourmet chef to be able to operate in the kitchen. Your home cooked meals, although you may want them to be, do not have to be the extravagant home cooked meals that momma whips up. Buying groceries, cooking in bulk, and storing excess food at home can save you a lot of money in the long run. Consider saving those fancy-shmancy restaurants for special occasions.

After a month has gone by and you have compared your actual expenses with your monthly estimates, determine which expenses are real needs and which represent wants. There may be places where you will need to make cuts just to make ends meet. Perhaps you’re making ends meet but haven’t any savings. Where can you make cuts or reductions so that your money can be redirected for better use? This is the challenge.

As a student or recent graduate, you should be living like a student now or you’ll end up living like a student later. Huh you say? That means that you should limit your expenses as much as you can now to limit the amount of debt you accumulate. Don’t borrow needlessly! If you can reduce your student loan debt by cutting expenses, you’ll be much better off once you graduate and begin repaying your student loan. Many students graduate with student loan debt in addition to credit card debt and have to live like students in their 30's because they’ve overextended themselves while in school. I hope you don't follow that destructive path.