An excellent first step in learning to manage your finances is creating a college budget to help you understand where your money goes each month.
With a clearer picture of your financial situation, you’ll be better able to plan for significant life changes like relocating to a new city after graduation, taking a gap year, or paying off your student loans. Even if you have fewer out-of-pocket costs while in school, keeping tabs on your finances is always a good idea. The financial plan you establish today will serve you well throughout your twenties and beyond. In addition, once the budget is set, only minor modifications will be required to account for shifts in income and expenditure patterns.
You can make a budget in various ways, such as utilizing a mobile app that syncs with your bank accounts or building a spreadsheet from scratch. No matter what tool you choose, you must commit to it and be accountable if you want to reach your financial objectives.
Here’s a guide on making a budget that works for students.
Budgeting for your college years
Determine your after-tax profit.
Detail your regular outlays for a month.
Separate your outlays into a fixed amount and an amount that can fluctuate.
Find out how much you spend on average per month.
Adjust as needed.
1. Determine your after-tax profit.
You may need a part-time job or internship at university to cover basic living costs. Grants, scholarships, loans, and even a monthly allowance from your parents are all potential sources of financial support. Your monthly income is the cornerstone of your budget since it determines how much discretionary spending money you have.
To begin making a budget, you must determine your net income or take-home pay after taxes. Your net income is the amount that makes it into your bank account every time you get paid by your employer, whether you work part-time or full-time.
If you work an hourly job and your hours fluctuate weekly or month to month, you should estimate a stable monthly total. Setting a low target is preferable if you want to stay within your budget.
If you’re self-employed, you must set aside money each pay period for taxes rather than letting them eat into your earnings. Using the TaxAct calculator to determine how much you’ll owe in taxes for the entire year, you may divide that number by 12 to get a monthly tax estimate.
(2) Compile a record of your monthly costs
The next step is to make a detailed budget for each month. Typical costs associated with higher education include:
Books and technology for the classroom.
Payment for lodging or food
Groceries
Dining
Contracts with Mobile Fitness Centres
Stuff for the home
Internet, phone service, and paid streaming services regularly
Costs associated with getting from one place to another
Make your monthly payments on your student, car, and personal loans.
Various types of insurance (medical, property, and vehicle)
Services that keep society running (such as water, gas, and power)
Gifts, recreation, and clothing are examples of miscellaneous items.
While savings account deposits aren’t technically costs, including them in a budget can be helpful.
3. Classify your costs as either fixed or variable.
Now that you’ve tallied up your regular outlays, you may separate the fixed from the variable costs.
Students face regular fixed costs for textbooks, housing, food, transportation, insurance, and loan payments.
Spending on things like gym membership, trips, restaurants, and entertainment falls under the “variable expenses” category, which is more malleable.
Cancelling your gym membership, putting off your trip, or cutting back on takeaway would only have a little impact on your life if your salary were to drop suddenly. However, housing, transportation, and medical insurance are expenses that you can count on incurring regularly.
4. Estimate the typical monthly expenditures.
After classifying monthly outlays as fixed or variable, write down the total amount spent. You can find the sum in your recent financial records.
Monthly payments for many fixed expenses are consistent, making it simple to estimate total outlays. Monthly fees, including rent/room and board, meals, insurance, and phone service, are likely consistent. Your gym membership is an example of a variable expense with a regular monthly cost.
Some expenses, both fixed and variable, do not have set prices. Renting an off-campus flat typically means paying for utilities like electricity and gas, which might vary in price from month to month. Food, takeaway, and cleaning supplies are all in the same category.
If your expenditure changes from month to month in any given category, you must complete some calculations to arrive at a monthly average. It’s easy to do the maths: To estimate a monthly cost, multiply it by three months and divide by that number. It could be more convenient to round the sum to the nearest five or 10. Set the maximum at $125 or $130 if your average grocery bill over the past three months is $123.
5. Modify as necessary
Checking your figures and ensuring everything adds up is the final budget creation step. Compare your monthly net income to your monthly outgoings to see if you have sufficient funds to cover your monthly expenses.
It’s time to make some changes if your current way of living costs too much money. Increasing your income by working longer hours is one option, but you should also consider decreasing your expenses.
One way to achieve this is to cut back on non-essential expenses like takeaway and streaming services you use sparingly. Costs are unpredictable, so you may need to change certain fixed payments. Save money on groceries by using digital coupons before you shop and using retail brands instead of name brands. Look for a new place to live where the rent is less expensive.
Conclusion
After putting in the time and effort to create a budget, you must use it. If you stick to your budget while in school, you’ll have less debt and better money management skills when you graduate.
Setting daily reminders to enter spending into your budget will keep you on track. When using a budgeting tool, it’s a good idea to set up notifications for when you’re getting close to your established spending limits. Your bank or credit union should also allow you to set up transaction alerts telling you when your balance gets too close to a certain amount.
Avoid financial disaster by revising your budget if your income or outgoings fluctuate.
