Worrying about money plagues the mind of many people, but fewer yet take the steps to become a better manager of their money. A 2019 Modern Wealth Survey found that only 28% of all Americans have a financial plan in writing. One way to improve your money management is to make and follow a budget. A written budget can help you keep your spending in check while working towards your financial goals. Because budgeting is one of the first steps on the road to financial success, it is important to understand why you need one, how you should budget money as a college student, and how it will benefit you.
Why do I need to budget?
Because of the low percentage of Americans utilizing a budget, many people don’t get to experience the positive effects of one. A budget can ensure that you know where your money is going. From breaking down your spending into categories to preventing yourself from spending money you don’t have, budgets lay out the financial figures that you need to make informed decisions about your money. Budgets can also help you reach your financial goals, such as finishing your college degree with minimal debt or driving a paid-off car.
Although budgets are important for everyone to follow, they can be especially helpful to those acquiring post-secondary education. College students have to worry about all of the costs associated with student living--tuition, textbooks, rent, groceries, phone bills, and more. Students also usually have a limited income because they are trying to work while attending classes and studying for tests. Budgeting can help you make big decisions, such as determining if you should live off campus or ask for an increase in your financial aid package to cut back some of your costs. In order to save money in college and avoid future debt, it is important to begin the personal finance steps that will teach you to manage your money like a professional.
Where do I start?
The most common place to start when you are beginning to budget is to determine how much money you have to work with. In other words, you should try to figure out your income (how much money is coming in), so you can accurately budget your expenditures (how much money is going out).
Typically, your income will be your paycheck from your job, an allowance from your parents, and any side hustles you have in college. If your income varies from month to month, add together three months of income and divide by three to get your average monthly income. After you determine your total income for the month, you need to figure out your expenditures. These costs can be a fixed or variable expense. You’ll also need to know the difference between essential and non-essential expenses.
It’s a good idea to start learning how to manage your money as soon as possible. Budgeting your finances can help ensure that your checking account never falls below zero. If you neglect to manage your money, it'll only be harder to get control of your finances in the future. However, if you begin to practice using a budget, your financial stability could develop into a long-term skill. If you are still unsure on the proper steps to take or prefer a step-by-step guide, check out this free budgeting template for college students.
What expenses do I need to include in my budget?
Because an expense is the money going out of your checking account, it is easy to withdraw cash, swipe your card, or write a check and forget about even making the purchase. Before long, your account balance is hovering between just enough money to get by and overdraft. Writing out your costs for wants, needs, savings, and debt repayment can make it simple to track your expenses, especially because all expenses can fit into two categories: fixed and variable expenses. Now that you know that, the next step is to learn the difference between fixed and variable expenses.
A Fixed Expense is a recurring cost of which the amount never changes. You will pay these expenses regularly (weekly, monthly, quarterly, or yearly). Because they cost the same every month, fixed expenses are easy to budget! Examples of fixed expenses for college students include housing, books, utilities, & transportation.
A Variable Expense is a potential cost that differs depending on your personal spending decisions. Unlike fixed expenses, variable expenses can fluctuate each month; this can make budgeting a little tricky. Examples of variable expenses in college include dining out, childcare, entertainment, medical/health, clothing, laundry, & groceries.
How do I identify unnecessary purchases?
Many new and exciting products catch our attention, but more often than not, they aren’t worth the money. Impulse buys, and other unnecessary purchases can hinder your financial progress. To save yourself and your bank account, here are five questions to ask yourself before purchasing anything outside of your budget.
Is this a want or a need?
Determine whether or not this item is for your satisfaction or for an actual purpose. Try your best to limit yourself to only one small "want" each week and one large "want" each month.
Will I still want/need this in a week?
A lot of impulse buys are for convenience and usually aren't beneficial in the long run. If you are having a hard time deciding whether or not a purchase is necessary, return to the item in a week to see if you still want it.
- How will this purchase benefit my life?
If you think that you need something that is not within your budget, write a pros and cons list. When looking at the list, see if the pros realistically outweigh the cost and the price.
- What is the cost in terms of hours worked?
You might say phrases like “it’s only $40”, but this mindset can get you into trouble. Instead, you should think about how many hours it would take you to work off the item. For example, if the item is $40 and you earn $10/hour, it would take at least four hours to cover the cost of that purchase.
- Can you afford to buy it two times?
If you really want a new name brand sweatshirt, but doing so would leave you with little money, you might want to wait. With any purchase, if you don’t have enough money to be able to buy the item twice, then skip the purchase.
What are some budgeting tips for college students?
Starting a budget is a great first step if you haven’t already, but starting to make small improvements towards your mindset will help tremendously. Beginning with small changes to your spending habits, you can make some real financial progress. Some budget ideas for college students are listed below:
Purchase used textbooks
It’s true that textbooks are expensive, but you don’t have to drop a small fortune on them. Ask your friends or other upperclassmen who have previously taken the class if you can borrow or buy their book from them. You could also purchase used books online or rent the electronic version of the book at a lower cost.
Take advantage of student discounts
In college, your student ID can be your best friend. Flashing your student ID at a retail store, restaurant, or any place that may offer student discounts for college students could save your bank account.
Imagine you’re scrolling through your social media and a free trial pops up. You sign up for a membership, but after the trial period is over, you forget that you’re paying for a subscription. Make sure that you cancel all memberships that you aren’t using anymore.
Replace eating out
Most colleges will require you to purchase a meal plan at the beginning of the year. Although you may get tired of eating cafeteria food, it isn’t wise to go out to eat very often. You can save money while grocery shopping for ingredients you like, and cook your favorite meals at home, usually for a fraction of the cost.
Limit extra purchases
Too often, you see an item in a store or online and want it immediately. Later on, you may wish you hadn’t decided to get that item. You can reduce the urge to shop on impulse by waiting 24 hours before you buy the item you really wanted.
Sell unwanted items
Everyone has a shirt or an object that you think you will use, but year after year it continues to sit in your closet waiting for the ‘perfect moment’. You could have a garage sale, post on Facebook marketplace, or consign your unwanted items to make a little money, while clearing the clutter in your home.
Get a credit card and begin establishing credit
A good way to free up a little room in your budget is to get a student credit card. Credit cards allow you to buy an item on credit and pay it back at a later date. This can be especially helpful if you are in-between paydays and have a financial emergency. Plus, you’ll establish a credit score for buying things you were going to buy anyway.
Practice the 50/20/30 rule
If jumping into a full-fledged budget with all the categories and divisions scares you, try the 50/20/30 rule to get you started. When you get your net income, or after-tax income, you should spend 50% of it on your needs and essential purchases. After that half is taken care of, spend 30% on things that you want and put the remaining 20% into savings.
What are some additional things to consider when budgeting?
There are many reasons you should create a budget in college; however, the main reason is to become a better manager of your finances. After graduation, your budget will become more complex. you will be bringing in more money and will have more expenses, including student loans. You may have some time to start preparing for those expenses, but utilizing a budget to build your savings will help tremendously. Having your budgeting skills already well developed in college will make it much easier to transition financially from student life to young adult life.
Learning to manage and save money can be challenging, but is also very necessary. Living paycheck to paycheck isn’t an ideal lifestyle. If you have a part-time job and few expenses, start saving small amounts every month. You should also try to get a summer job during break to store away some extra cash. You’d be surprised at how quickly every bit adds up.
Secondly, tracking your spending and creating a budget helps you to become aware of what you are typically spending your money on. This can help cut out any unnecessary purchases you may have. When cutting out all the extra costs, you can start adding to your savings accounts and building an emergency fund, which will be beneficial in the long run.
Finally, creating a college budget can help you to learn what type of financial decisions are right and wrong early in your life. You should always try to be cautious about what you are going to spend your next paycheck on. Developing this financial decision-making skill can also help you build your savings and spend your money wisely for the rest of your life.
👍Ready to build your own budget? Check out How to Create Your Budget.
😎Are you a financial wizard? Prove it by taking the Quiz: Are You Good at Managing Your Money in College?