Page 314 - Keys To Community College Success

KEY 11.2 Put your wallet away today to save money for tomorrow.

DAY-TO-DAY EXPENSE APPROXIMATE COST POTENTIAL SAVINGS
Gourmet coffee $4 per day, 5 days a week, totals $20 per week $80 per month; $960 for the year. Invested in a
5% interest account for a year, would amount to
over $1,000.
Alcohol Two drinks plus tip total about $20 per night, $160 per month; $1,920 for the year. Invested in a
two nights per week amounts to $40 per week 5% interest account for a year, would amount to
over $2,000.

Ordering in meals $15 per meal, twice per week, totals $30 per $120 per month; $1,440 for the year. Invested in a
week 5% interest account for a year, would amount to
nearly $1,550.

can think through spending decisions more effectively. This is not to say that you
should never spend money on wants. Just take calculated risks that satisfy your needs
first, and then decide what to do with what is left over.

How Your Time Relates to Money

When you spend money from your paycheck, you exchange the time you spent earning
that money for a product or service. For example, let’s say you are thinking about
spending $200 on a cell phone upgrade. If you have a part-time job that pays you $10
an hour after taxes, you need to work a full 20-hour week just to buy the phone ($200).
Does the risk of the expense justify the reward? If the answer is no, put the money
away and use it for something you value more. Exchange the risk of your work hours
for rewards that matter most to you.
The relationship between time and money becomes clear when you compare how
long it takes to earn money to what you spend on a day-to-day basis. Key 11.2 shows
how reducing regular expenses can make a difference.
Getting a college education is a risk that costs many hours of work, and student
11 debt continues to rise, with the mean debt burden for students graduating in 2011 at
CHAPTER choice, and more and more students are working to minimize debt by prioritizing less
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almost $18,000. For many students, tuition costs are a significant factor in college
expensive schools. However, tuition and time spent reward you with improved chances
of long-term financial success. “Education is a much better reason to borrow money
than buying cars or McMansions,” reports the Wall Street Journal, “and it endows
people with economic advantages. . . . As of 2009, the annual pre-tax income of house-
holds headed by people with at least a college degree exceeded that of less-educated
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households by 101%.” Opportunity cost refers to what you give up to get something.
For most students, the opportunity cost of going to college is worth it.
With an idea of what values lie behind the financial decisions you make, you will
be more able to take productive risks that move you toward meaningful financial goals.
Start with creating a budget.

HOW CAN YOU CREATE
and use a budget?

Everything you will read about money management in this chapter falls under the
“umbrella” of one central concept: Live below your means, or in other words, spend
less than you earn—whenever possible. When money in is more than money out, you
will have extra to save or spend.

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