Dollars and sense: learning to budget and save

Jenny Ravellette is scared about the future. As cash keeps slipping through her fingers, the 21-year-old junior feels increasingly unprepared to manage her money.\n"I have no idea what I'm going to do after school," she said, eyebrows raised in seriousness. "I've never had a real job with a lot of money, with big money coming in. I won't know what to do with it."\nRavellette spends money when she needs to and doesn't regret splurging on the perfect pair of jeans. She pays bills with loans and uses her $5.45 an hour paycheck from RecSports for weekend fun. She tries to shop smart for groceries by buying generic brands, but she needs her Smart Start cereal and Doritos, for which an imitation just won't do. \n"I don't deprive myself of anything that I want," she admits. "If I want that candy bar or that magazine while I'm waiting in line I get it."\nAmerica's youth is a spending machine that storms the fun and leisure market, according to American Demographics. Reflecting its social priorities, Gen Y spends 70 percent more than other generations on alcoholic beverages, 38 percent more on tobacco and 25 percent more on food away from home. After all the partying, young adults come home to their critical appliance: a home entertainment system, on which they've spent 31 percent more than other people.\nOn their own for the first time, many young adults discover they lack the skills to balance their budgets. In addition, they often run up huge debts.\nEighty-three percent of undergraduate college students have at least one credit card, according to a study conducted by Nellie Mae, a national higher education loan provider. The median credit card balance is $1,770, a 43 percent increase above the median in 2000. The increase indicates that more students are not paying off the balances, Mae said. There has also been an increase since 2000 in the percentage of undergraduates with high-level balances. Twenty-one percent of undergraduates with credit cards have a balance between $3,000 and $7,000.\nStudents double their average credit card debt and triple their number of credit cards from the time they arrive on campus until graduation, Mae said, and graduates enter the real world with an average of $20,402 in combined loan and credit card debt.\nFocused on a career in public finance, sophomore Emily King said she never learned any money skills from her parents.\n"My parents are big spenders, ridiculous spenders," she said, shaking her head in disappointment. "I learned from my uncle, not from my parents. It's funny how I'm so different from them."\nRavellette also said her parents lay off the money management lessons -- they don't give her advice or suggestions for budgeting money.\nHaving parents who are smart with money can be a great foundation to developing money-management skills, said Ryan Pittner, a financial consultant with Comprehensive Financial Consultants in Bloomington. But even without money-savvy parents, young adults can learn the essential life skill of managing money. \nPittner suggests making a simple budget based on income, even if its just jotting notes down on notebook paper. List all expenses and then subtract from total income; adjust amounts in personal categories to fit everything into your means; factor in all bills and goals to pay off any debts; free up money in other areas to increase savings. \nA budget can be broken down into three basic steps, according to CNN Money. First, identify how you spend money. Then, evaluate your spending and set goals to carry out long-term objectives, such as paying off debt. Finally, track spending to ensure you stay within your new guidelines.\nAn introductory finance course or a money-management class can also be helpful, Pittner said. Personal Finance is designed to help people manage their money, from simple budgets to estate planning. After teaching the course for 10 years, professor David Haeberle said there is no other class in the University that has such an effect on students.\n"I know I can make a difference in their lives," he said. "If students go home and do what we talked about in class that day, I've immediately put money in their pocket."\nBut, if you can't take his class, Haeberle said, there are many easy-to-read self-help books available and that it's everyone's responsibility to learn financial competence.\n"It's not about making more money," he said. "It's about spending less, whatever your income."\nHe also strongly suggests spending on a cash-only basis by staying away from credit, debit and ATM cards. \n"Its much harder to part with the green stuff rather than plastic," he said.\nThe credit card lesson is one Haeberle stresses to his students. While some young adults think they need to build credit, Haeberle warns that no credit is better than bad credit. The only appropriate uses for credit are for borrowing money to buy a house, a car or an education, he said. If you keep a card for emergencies, traveling or for the convenience of buying online, use it wisely, he said.\n"Credit card companies are teaching us that it's okay to consume on credit and it's not," he said. "You get nothing for your money."\nWhen credit card debt is getting out of control, try fixing it yourself before it's too late, suggests the American Bankers Association. First, get a realistic idea of the problem by adding up the entire debt you've collected. Immediately stop charging and put away those credit cards. After carefully reading your statements, figure out where the money went and apply the information to making a new budget. Many credit consolidators and counselors are also ready to help people drowning in debt, including the Consumer Credit Counseling Service, a non-profit organization that has branches across the nation. Doug Chokey, branch coordinator of CCCS in Bloomington, said most young adults come to him when they have run into trouble and don't know what else to do. His fees usually range from $15 to $20 depending on one's income and number of debtors.\n"If you make the choices you will stick with them longer," he said. "... We put the responsibility back on the client to look at their habits and how they spend money."\nChokey suggests paying yourself first when making a budget by putting whatever you can into savings, even if its just $5 or $10. As new investors and wage earners, young adults have an abundance of opportunities for long-term planning, he said, like immediately starting their 401(k) retirement fund at their first full-time job.\nMoney experts realize that long-term budgeting is a hard habit to develop, but Pittner said many people generally shy away from it because they don't know where to start.\n"Young adults are a little reluctant to put too much away because they want to enjoy things today," Pittner said. "They live for today and you can't blame them, but they need to take advantage of their youth and start planning for the future now"