Good habits pertaining to personal finance for someone just getting started?

Question

I'm in college right now. I'm in my 20s and will graduate next year. I haven't invested in any funds/stocks or anything of that sort. I am not working currently (part time or full time) — well, that's the way it goes among college goers in my country (India); nobody is, technically speaking, working in a job.

What are some good habits—basic ones to advanced—that you would suggest I would have to inculcate at this age so it helps me later in my management of finances?

Answer 1

1. Understand the difference between mandatory spending and discretionary spending. Mandatory spending equals the bills you have to pay every month, such as a car loan, mortgage, the electric bill, food, etc. You might not have much of this at your age. Discretionary spending is everything else that we blow our money on: going to the movies, buying jewelry, buying a candy bar.
2. Plan a monthly budget. Take your expected income and subtract out your mandatory spending. Assuming there is something left over, have a game plan for what you do with that leftover cash. You could plan a budget now even though you are not working.
3. Pay yourself first. That is the saying anyway. After you make a budget, force yourself to save some of that extra cash before you blow it on a bunch of wasteful discretionary items. How you save is up for debate (savings account, retirement account, paying of loans early so you can reduce some of your mandatory spending). Just save some fraction of that leftover money instead of spending it all.
4. After setting aside some money for savings, you will have a little bit left for discretionary spending. It is ok to enjoy life. Go to the movies or go out to dinner with friends. Just know exactly how much you have your budget for these items. Once this money is gone, it is gone. Don't tap into savings to pay for discretionary spending!
5. Live beneath your means. I probably don't need to tell you this, but in America, most people, especially people your age, want to live way beyond their means. They want fancy cars, high tech phones, clothes, etc. Case in point: my son, who is about your age, drove a 2 year old sports car to work today. He is currently paying 10% interest on his loan for that car. I drove an 18 year hunk of junk with 178,000 miles on it. Which one of us do you think is in better financial shape? You couldn't tell by looking at our vehicles!
6. Learn and understand the power of compounded returns on investments, then commit yourself to leveraging this power. It is a little early for you to really put this to use, but it is not too early to understand the math.
7. Learn the difference between evil debt, bad debt, and good (or at least ok) debt. Credit cards and high interest card loans with interest rates higher than 10% == evil. Avoid at all cost. Student and car loans between 5-10% == bad. Sometimes you have to take out loans like this, but try to get them paid off. Mortgage and other debt below 5% == ok. When you have to borrow, try to stay in the good/ok category. Understand mathematically why this is so.
8. Don't fund discretionary spending with bad or evil debt: for example, don't put a new TV on a credit card that has 20% interest.
9. Life will throw you a curve ball every now an then. Use some of the leftover money from your budget to build up a emergency cash reserve. Use this reserve when life gives you an unexpected surprise.

Answer 2

If you are not working, I believe you would be getting some money from your family to meet your expenses.

In such a case, I would start with maintaining a Cash A/c which would list your monthly expenses and the money you received, which is what I used to do at your age. You can maintain it in a notebook with pen/pencil or using online tools such as Google Sheets. Enter each expense entries each day as debits and entries towards any money you receive as credits. At the end of the month, tally them and see how much you have left. Also, this gives you a clear picture of where your expenses are what is that you can avoid.

On longer term, this can help you form an annual budget for your personal finances.