Budget management, also known as “paying the bills”, is a practical and beneficial skill that can be used for the rest of your life. Unfortunately, while colleges offer classes ranging from astrophysics to medieval poetry, there are few classes available on personal financial management. The most effective way to learn good budgeting is by handling the costs of your life. While in college, students are given the time and place to learn budgeting skills so that when they graduate they can transition into independence. Some examples of college budget questions include:
- “Can I buy a new laptop and take a European vacation?”
- “Will there be enough money for gas in my car?”
- “How much money can I get by selling this textbook?”
- “How much did I spend on pizza last month?”
- “Does it make sense to buy a case of Ramen Noodles?”
- SPRING BREAK MONEY
The surprise is that these kinds of questions are actually recurring well after graduation. The difference is that over time the products and services used may change, but the value of good budgeting remains the same; high.
The trouble is that students miss out on this learning experience for one reason or another. Many students get so caught up in the college lifestyle, they forget why they are even there; to develop a future. Learning about budgeting at an early age enables a student to handle responsibilities and develop a mindset of accountability. Here are seven points about college budgeting that are very beneficial to college students.
1. Establish Goals
It could be for a car, a trip or a new gadget but your money is destined to go somewhere. Without any goals, your money will run wild and go all over the place. Take control of your money by having a clear reason to establish a budget. If money for Spring break is your goal, then establish it and stick to it. This is the first step to developing budgeting skills.
2. Know the Resources
There are many ways to get money, but most college students gain access through an off-campus job, work-study, a large cash gift, or a student loan refund check. If your cash flow comes from work, you have to account for a certain number of hours in order to secure it. Cash gifts are great, but if you do not regularly receive them then you should conserve the cash for important items. A student loan refund check is a bit different. If after all grants, scholarships and student loans have paid to the account and there is extra funding left over, a check is given to the student for the difference. Many students apply for enough student loans to pay their bill and have some extra money for expenses. Just remember, it is a loan that must be repaid.
3. Know the Expenses
The cost of food, transportation, books, computers, and other items are the most predictable college expenses. The problem is that other expenses begin to creep up. Going out to eat at odd hours, lots of new clothes, constant tech upgrades and an endless amount of consumer goods are all available. When developing the budget, first account for all of the necessities on a monthly basis that must be handled in order to complete your education. Any extra money left over can be used for luxury items and non-necessities. Your goal will be to prioritize the value of each product or service considering what value it really has. As a student, you can honestly avoid buying most products and services as they are not useful for educational opportunities.
4. Using Credit Cards
Learn to master your credit early in life for greater benefits later. As highlighted in a prior article, employers today look at the credit report of a student as part of the employment background check. There is an even greater incentive for college students to have strong credit when they enter the job market because of this. However, in order for anyone under 21 to qualify for a credit card, they must have a cosigner or they must be able to document how they support themselves. Students should use credit only for certain emergencies where there is no other option available. Credit card balances should be paid off as quickly as possible, building credit while the student is in school. Large, recurring credit card balances must be avoided at all times. The goal is to finish college with a better credit rating than when you started, not a worse one.
5. Factor loan repayment as part of budgeting
If you are taking out student loans to pay for college expenses and you have some income then start repaying the loans now. With interest accruing on student loans they can quickly grow. Reduce debts by allocating a payment towards loans every month. Not only will it lower your debt, but also improve credit. You should also consider refinancing student loans, this can help save thousands.
6. Allocate Savings
Saving money is an important habit best developed in the early years. Establish a minimum amount of money that can be saved every month based on what income is available. It does not matter if the monthly amount is not substantial. What is important is knowing that with every dollar earned, a percentage of it is saved. You should not spend all of the money you have as soon as you get it.
7. Develop Positive Habits/Skills
Being aware of your resources and expenses, building credit early, saving money and knowing the difference between wants and needs are all critical to personal financial management. No matter where you are in college, you can develop a positive habit of accounting for these things. Think of a college budget as preparation for the future. By developing these habits you will be ready to handle the challenges of life after college.
Building Your Budget
Pinning down all the details of your post-graduate life will help you better structure a budget that works for you. So how can you build a budget that factors in all your expenses and helps you leave a little room for yourself?
A good place to start is with the 50/20/30 budget created by Senator Elizabeth Warren. This budget breaks down on a monthly basis how much you should spend on housing, bills, and how much you should be saving based on your monthly income. Here are the details:
- 20 percent goes to meeting financial goals
- Paying off loans
- Paying off credit cards
- Making retirement and long term savings investments
- 30 percent goes to flexible spending or saving money for yourself
- Travel expenses
- House necessities
- Discretionary expenses (hobbies or going out to eat)
- 50 percent goes towards your living expenses and essentials
- Monthly rent
- Food expenses
- Transportation costs
The 50/20/30 budget isn’t so much a rule as a guide. It can help you build your way towards financial stability, and is a great template to follow for those that are a novice to budgeting. Plus, it’s flexible to your needs, meaning if you need to reorganize the budget you can (for example 30 percent on essentials, 50 percent on financial goals, and 20 percent on flexible spending).
The road to sound financial planning is long and filled with inevitable mistakes. No one is perfect on their first try — especially college students or recent graduates making the transition from college to the workforce. However, shifting the outlook from borrowing funds from the future to planning for it with today’s money will make all the difference.