College students need to take control of their finances as early on in their education as possible. Even if your outflows far outpace your inflows--as they normally will when you are in college--it is important to begin honing your money management skills and developing good habits for after you graduate.
Ledger1 can assist you with this task, and at the same time you'll be building a skill that many employers love: proficiency with Microsoft Excel.
Ledger1 is an Excel based money management tool. For a limited time it is being offered to all college students for free. You can download it at Ledger1.com.
After downloading and browsing the various pages of Ledger1 (you'll need Excel 2007 or later, macro enabled (cloud version won't work), here are some tips on getting started.
How students can manage their finances using the Ledger1 spreadsheet
STEP 1: Set up all your accounts in Ledger1
You'll need to create a snapshot of exactly where you are today. You need to know exactly what you have and what you owe, and this will be your starting point for Ledger1, your beginning balance. It might seem strange to calculate your net worth before you even begin your career, but you will realize 2 benefits by doing so:
1. You're developing good money management habits by knowing exactly how much you have and how much you owe at all times.
2. By getting an early start on watching your finances, you'll quickly gain a better understanding of how time and money work hand in hand. I probably don't need to show you yet another graph illustrating the power of compounding. I'll leave that to the financial advice folks. Our focus here is on getting started with collecting and managing the transaction data you need to make informed decisions about your spending and saving.
You'll need to grab any paper account statements you have, and pull up any online statements and create accounts for each one of them in Ledger1. This is a fairly easy step; just enter the name in the Accounts Table and then enter a beginning balance transaction on the Ledger Page. Watch the tutorials for more information on how to set up accounts in Ledger1.
When this step is done, you'll have a bottom line number that represents your net worth, i.e. what you have minus what you owe. Don't be too alarmed if this number seems absurdly negative. The average 2016 graduate had over $30,000 in student loan debt. If you are a recent high school grad entering college, trade school, or business school, chances are you'll see your net worth drop before it begins to grow in a few years. Always remember that you are investing in your future. And an investment in education has a lifetime to pay back.
TIP: Create an Account for your wallet or purse. Call it something like "pocket cash", "purse cash", "wallet cash" or similar. When you withdraw cash from one of your accounts, you will use a transfer transaction and transfer the cash to your "pocket cash" account. Then as you spend your cash, you can categorize all the transactions. Just withdrawing cash and categorizing it as "ATM Withdrawal" is a recipe for disaster. "ATM withdrawal" is not a category of spending. It is simply a transfer of money from a bank account to your wallet! Then you spend it and that spending gets categorized. You need to keep your receipts and enter all your cash transactions. Don't get caught in the position of wondering "where did I spend this $4,000 worth of ATM withdrawals last year".
STEP 2: Select the income and spending categories you want to track in Ledger1
Decide which spending and income categories you want/need to use. This is the most important step of setting up your Ledger1. Track too few categories and you won't get the data and answers you need to make informed money management decisions. Track too many categories and you create unnecessary work and complexity for yourself. Here is a tip: start simple (few categories) and add more categories as they become needed later.
Here are some expense categories that will be required:
Room & Board (for dorm dwellers)
Rent (for apartment dwellers)
Education Related (computer, desk supplies, software, backpack, etc)
Transportation (car expenses or taxi/bus)
Here are some income categories to consider:
Income: Assistance (parents, family, etc)
Note: Loans are tracked as an account, so they don’t appear here with the income categories. When you spend an amount that comes from loan proceeds, that is when the amount gets categorized.
TIP: When setting up your categories, ask your parents or anyone who is providing assistance if their are any amounts that they will need from you at tax time. Then make sure that the categories you create include one that tracks the amount they need for their tax returns.
STEP 3: Set up a Budget for yourself on the Budget Page of Ledger1
Now that you've decided which categories you'd like to track, monitor them using the tools on the Budget Page of Ledger1. For example, the Budget Table allows you to set monthly spending limits by category. Some categories that will definitively need to be limited are: Dining Out, Entertainment, Clothing, Groceries and any other categories that represent a potential weakness in your spending habits. The Budget Table also allows you to monitor due dates of your monthly bills (rent, utilities, etc). To help keep your credit score pristine, use this feature. Take a look at the Budget Page Tutorial for assistance.
TIP: You might need to ask for assistance when deciding how much to budget to various areas. You can ask older friends who are experienced students, or inquire directly with your school. Also, your parents or others giving assistance might want to have some say in how your money is spent! Including them up front will avoid unpleasant reactions down the road.
Now that your Ledger1 file is ready to go, it is important that you keep your transaction input up to date. A few minutes every other day is all that is needed to enter your transactions, and then you can check up on your spending limits while you're at it. Ledger1 allows you to download transactions directly from your bank, but with so few transactions it's better to just enter them individually using the Transaction Entry Box.
The benefit of using the Ledger1 spreadsheet will be apparent after just a few weeks of use, and after a few years of it will become an indispensable tool for you. In the first few years after you graduate and you are probably receiving entry level wages, Ledger1 can be of great assistance. Always remember this: at the times when your financial path seems like a really long tunnel with just a feint glimmer of light at the end, rest assured that the glimmer of light you see is not an illusion, but the tunnel is! Develop good money management habits and the tunnel will disappear in no time.