Basics of Budgeting in College (And a Student Budget Example)
Essential Budgeting Tips for College Students
The basics of budgeting are a simple but powerful concept. College freshmen can experience lifelong benefits from a strong financial literacy skill set.
One of the most important parts of adulting is learning how to successfully handle your money.
According to the 2018 NFC Study, individuals who've received a better financial education are more likely to save money and less likely to overdraw their checking accounts.
Which sounds ideal, right? In essence, when it comes to personal finance it really pays to know your stuff.
However:
Engaging in positive personal finance behaviors and avoiding the poor ones isn't something that happens overnight. Complete financial literacy comes gradually over time.
Thankfully:
College freshmen aren't expected to be experts about money right off the bat. But, taking steps to understand it long before post-grad life rolls around IS in your best interest.
And:
Taking control of your financial health begins with creating a budget. Don't worry though, it doesn't need to be anything fancy or tedious.
A simple budget plan is a winning strategy and I'm going to show you how easy it is to get started.
What is a Budget?
In a nutshell:
A budget is basically a way to see how much money you have and where it's going.
Knowing this information has helpful benefits. Like avoiding unnecessary fees to due an oversight or two in spending.
A budget will also allow you to determine where you can cut back on expenses (if needed).
And:
A monthly financial plan can also help you achieve goals faster. Wouldn't it be better if you didn't have to wait as long to make that special purchase you've been wanting?
A budget is a useful tool that doesn't need to suck all the fun out of your life! On the contrary, a new study has found that it can ease financial stress and even improve your mental health.
The Basics of a Budget
Learning how to budget is relatively straightforward. A simple budget plan only uses three main categories.
NOTE: A month is a common time frame to use for budget planning, but you can use any stretch of time that works best for you.
1. Your Income
When it comes to budgeting, the first thing you need to do is calculate your net income for each month.
Take into account how often you're paid - weekly, biweekly, monthly, etc. Are you on salary or is the amount you earn inconsistent?
If your earnings are inconsistent you can estimate your income. But err on the side of caution by keeping your estimates on the lower side.
Be sure to think about any other income you have besides your main job, too.
As a college student, some of your expenses may be covered by funds from:
Work study
Scholarships
Grants
Financial aid
Loans
Parents
All those sources would be counted as income in your budget.
2. Your Expenses
Now that your income has been accounted for, it's time to take a look at your spending habits.
There are two types of expenses: fixed and flexible. You can think of them as needs vs wants.
Fixed expenses occur on a regular basis and typically don't change in cost. These would be things like:
Tuition
Rent/Housing
Loan payments
Insurance
Phone service
Subscription memberships
Credit card minimums
Flexible expenses have more wiggle room. The exact costs can vary, which can they can change more easily. Examples are:
School supplies
Groceries
Fuel/transportation
Utilities
Entertainment
Clothing
Car maintenance
Parking
Eating out
Discretionary spending
As you're totaling up your expenses, I recommend rounding up.
Say there is a subscription service that costs you $19 a month. Add it in as a $20 expense instead of $19.
It's better to subtract a little extra than to be a little bit short on bills come the end of the month. Rounding up will give you an extra safety cushion of sorts in your budget.
3. Your Financial Goals
Once you have your total income, go ahead and subtract your total expenses. If you have more expenses than income, then it's time to start looking at where you can cut back.
But if you have money left over:
This is what can used for your financial goals, i.e. savings and debt repayment. Saving 10 to 20% of your monthly income is a good goal to shoot for.
Compared to living paycheck to paycheck, having a nest egg in the bank can be quite a relief. Plus, saving money is proven to make you happier!
Budgeting Basics Recap
Combining all these steps is how you start budgeting. To refresh your memory, here's a quick summary of how a budget works:
1. Take into account how much income you'll be bringing in. Estimate low if your income is inconsistent paycheck to paycheck.
2. Calculate your fixed and flexible expenses for the month. Round up to give yourself some insurance.
3. Subtract your total expenses from your monthly income to see if you need to make some spending adjustments. Use leftover income to work on your financial goals (debt and savings).
Budgeting Tips for College Freshmen
The basics of budgeting show that it isn't really all that complicated to do.
Now:
I have some extra tips for students that will help support the success of your budget.
Track Your Budget - on Paper or Digitally
The best way to actually stick to your budget is to write. it. down.
Print out a physical template (check out the student budget example below) or use a money management app. It doesn't really matter what you use, so long as it's something that you'll actively utilize.
Keep track of what you planned for income and spending habits.
But also:
Record all your purchases as you go. Logging what you spend will serve as a reminder for your budget and your goals.
Additionally:
Doing so will paint a much clearer picture of how you did at the end of the month.
Use Bill Reminders
An innocent mistake, like accidentally forgetting to pay a bill, can really upset the balance of your budget.
Late fees can be pricey in general, but especially so when money is already tight. And too many missed bills can hurt your credit score.
Plus if a bill slipped your mind, it's easy to assume the money for it was just extra. Then you might end up spending it on something else...
I'm sure you can see where this is going - missed bills can cause big problems!
By creating a budget you already set aside the money for the bill, right?
So:
Do yourself a favor and use reminders to make sure your bills get paid on time.
Google Calendar reminders, automating payments (if you can count on always having enough in your checking account to not overdraw it), a printed bill tracker, and even post-it notes are all good options.
Find something that you can't ignore!
Keep an Eye on Spending & Reevaluate
As mentioned earlier:
Accurately keeping track of your budget is crucial. Splurging temptations can be kept in check by regularly taking a look at your spending throughout the month.
Be sure to review how your budget went on a rolling basis. Reevaluate to see if you need to do anything differently.
Maybe in the upcoming month there's a concert you want to go to, so you'll budget some extra money into your discretionary spending.
Or maybe you spent less money on groceries than you originally allocated for yourself. You could try reducing how much is budgeted for that category in the next month.
Play around with your budget. Fine tune it overtime to counter your weaknesses and to support your long-term goals.
Student Budget Example
Here's an example of a college student budget:
You can use this spreadsheet to get started right away!
*The example student budget is an adapted version of Vertex42’s Personal Budget Spreadsheet.
Conclusions on the Basics of Budgeting
Anyone can master budgeting with enough patience, persistence, and self-discipline.
But, be realistic.
Some months sticking to your budget 100% correctly just isn't going to happen. Don't be too hard on yourself, though - no one is even close to perfect.
When financial disappointments happen, instead of beating yourself up about it:
Identify what went wrong and focus on how you can make improvements. You'll be on the right track so long as you keep moving forward.
Remember that you can't eat an elephant in one bite! Achieving your financial goals is possible when you keep life in perspective.
