Plan and Execute a Budget While in School
Money can seem like an abstraction, especially when students use plastic to pay for their purchases, rather than crisp dollars and shiny coins. In no time at all, students may find that they’ve used up all of their money on personal expenses and unnecessary things, and then they’ll have bills crowding their inboxes. Taking charge of your personal finances can seem difficult or even impossible, but creating and sticking to a budget can be a step in the right direction.
What is a budget?
The goal of a budget is really quite simple:
To compare the amount of money coming in with the amount going out, allowing consumers to make smarter choices about their finances.
Typically, budgets are considered living documents that change as a person’s income level and debt level changes. The amounts that appear on these documents aren’t fixed in stone. However, those who do craft a good budget and make it work can reap huge rewards. Unfortunately, only 32 percent of people do so.
Source: Gallup poll, as reported by the Deseret News
think personal finance should be taught in school
require money management lessons to be incorporated into other classes
require a high school standalone course in personal finance
Thankfully, it’s never to late for students to learn. By following a few simple steps, and sticking to them on a regular basis, students can make a budget that works. Here’s how to get started.
Step One: Determine Income
The amount of money that comes into a student’s account is considered income. Students who work may consider their paychecks their income, but other sources of money might include:
Student loan disbursements
Scholarship fund disbursements
Family allowance payments
Tips earned at work
Each bit of money that comes in should be included in the budget, even if that money is intended for some specific purpose.
Step Two: Determine Expenses
The amount of money a student is obligated to pay makes up the list of expenses. Common fields to track include:
Step Three: Determine Debt
Each and every month, the average student is presented with a bill from some sort of lending agency. Sometimes, those bills come from student loan servicers. Often, however, those bills come from credit card companies, and few students understand what those bills really mean.
70% of undergraduates; 96% of graduate students have credit cards
Fewer than 10% pay the balance in full each month
Only 15% Know their interest rate
Put these statistics together, and they seem to suggest that few students know how much debt they owe and its cost, and fewer still include their debt in their monthly accounting processes.
It can be time-consuming, but students should gather up all of their debt-related documents and plug in those numbers, including the amount the student is expected to pay on a monthly basis.
Step Four: Determine Savings
Few students think about putting money away for a rainy day, but unexpected expenses can pop up regularly, such as car repairs, fluctuations in utilities, or medical emergencies.
Putting aside a little in savings can allow students to ride out these expenses without leaning on credit cards, and having an emergency fund set aside for unexpected expenses is always a good idea. Additionally, making a habit of saving money early on can help students prepare for long-term savings and financial goals.
By age 35, people should have 1x their current salary in some kind of retirement account, per Fidelity Investments.
By starting a savings plan now, students can make this goal a little easier to reach.
Step Five: Balance Incoming and Outgoing
With accurate targets of money coming in, and an honest assessment of the money that should be going out, students should be able to determine how much money they really have. But if the numbers don’t quite add up and students find that they’re spending more than they have, there are some steps they can take to balance the books.
By swapping out a car for public transportation or a nifty bike, students might find that their monthly budgets are a little easier to balance. Having a car can be a big expense. According to College Board, automobiles can gobble up about 17 percent of a student’s budget, as these car-related expenses can get very pricey over time:
Loan, Lease or Payments
Other small changes can make a big difference, like making your own dinner:
Cost of dinner at Chipotle = $10 ($300 per month)
Cost of dinner cooked in slow-cooker = $2 ($60 per month)
Savings per month: $240
Living on a budget
Many people come up with wonderful budget ideas and then find that they can’t stick to the resolutions they’ve made.
Changing spending habits is hard, even if it will result in long-term benefits.
While people who keep budgets may have hundreds of tips and tricks they use to stay on track, these four steps may be very useful to people who are just getting started.
Buy groceries, coffee and other incidentals with cash, rather than using a debit card.
Tally up receipts at the end of each day and compare progress with the goals outlined in the budget.
At the end of a month, revise amounts in areas that seem underfunded.
Use our tools to help you reduce the amount you spend on school like our scholarship finder.
There are also some online tools and services that can help you manage and stick to a budget, such as Mint and BudgetPulse. Apps and services like Mint track your spending habits on a daily basis, and can help you analyze your spending based on categories (ex. Groceries, entertainment, transportation, restaurants, etc.).
Word of caution
It isn’t easy to create a budget, and it’s certainly not easy to live within the boundaries a budget sets. At times, students might feel as though their lives would be better if they stopped worrying about money altogether and simply kept spending now with the hopes of paying it all back later. Unfortunately, that kind of thinking can result in disaster. The 2011 federal student loan 3-year default rate was 13.4 percent according to the U.S. Department of Education.
Students who don’t learn how to budget now may borrow too much for school, and when they start their careers, they may not know how to manage their finances in order to repay their loans. Those students who do take control now will be in much better financial shape, both while they’re in school and when their school days are over.