Wednesday, 21 October 2009

miss no moneypenny part three

Part three in my 2007 financial planning series.

I was drinking with some friends and someone suggested we go all out. One of our crew lamented a cash crisis situation. Not a problem, exclaimed another friend, you can extend your overdraft over the phone, right now, sitting here in this bar, drunk!

This is an example of bad financial planning, and I cannot recommend it much less than taking a roller coaster ride on the stock exchange with two thousand Zimbabwe dollars.

Okay, a night in doing personal accounts is not a scintillating exercise. However, it is vitally important to keep track of your money digits. This can be as little effort as reading your monthly statements and checking your balance every time you withdraw. Scanning these numbers will give you a basic awareness of where your money’s going and what spending pattern you can keep up. If things are getting tight, start withdrawing a certain amount each week and sticking to it. Don’t be tempted to take your card out, or to buy things online thinking that it’s not ‘real’ money. A number’s a number, and it’ll decrease whether you like it or not.

The best advice budgeting advice: try not to go into your overdraft. Banks can seem generous and it’s useful to have an interest-free overdraft to dip into during those personal ‘Northern Rock’ moments, but it’s not there to be lived out of.

I used to be petrified of ending up in the red, while a lot of students I knew casually talked about the hundreds of pounds they owed. When I ended up more in debt than I planned (and I use plan in a loose sense, because – confession - I didn’t plan at all) I understood the feeling of ‘overdraft underwhelm’. Being three hundred pounds into your overdraft is absolutely terrifying. Being £600 down isn’t really that much different, hey, it’s still the hundreds, right? But keep on spending, and you discover that being £1200 overdrawn doesn’t feel any different either, until you graduate and the bank wants their money back.

That might seem far off, but I am warning you from the future. I celebrated graduating this year with ten thousand pounds of student loan, minus twelve hundred pounds in my account and an I-O-U to the bank of mum and dad for a grand. I went over my overdraft once, missed some credit card payments, and now have to keep up with council tax bills (this one’s a real bugger) and self-finance a part-time post-grad. I paid off the credit card, but I’ll be living out of my overdraft for some time yet. I’m not one of the worst off, but I’ve left the splendour of spontaneous student life and believe me, I sorely miss it.

Make sure you know how much you have until the next SAAS pay day. Pretending not to know how much you don’t have is plain dangerous, and having a ‘fuck it’ moment like my friend will make your overdraft rise exponentially. Be honest! If you can’t control yourself, get your bank statements sent home instead of to your term address. They’ll be out of sight, out of mind, and right in the lap of your parents. And there’s nothing more frightening than that.

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