A Guide For College Students To Make Their First Budget
|6 Useful Budgeting Tips for First-Year College Students|
College is a time when you learn many new things quickly – you're learning about your major and future career, meeting people from all over the world, and learning how to live independently. But for most college students, there is one area that is sorely lacking: studying money.
According to Everfi, nearly half of college students said they weren't prepared to manage their money, and more than half said they were worried about whether they had enough money to make it through the semester.
That's the case with Arya Clements, a 23-year-old Stanford graduate, a senior financial analyst at Microsoft, a Gen Z adult, and a creator of financial Instagram. Despite her strong interest in math and numbers, and her experience taking economics courses majoring in public policy, Clements decided she couldn't gain knowledge of money management and finance.
"I did internships over the summer, made money from it, and tried to figure out how it was going to work for the rest of the school year," she said.
Later, when she received her first graduate offer during the pandemic, her troubles with managing funding at the university would become apparent.
"The first two months of my job ... I was like: 'I'll order DoorDash. Never mind. I'm living at home, I'm saving money, 'or...' I'm going to New York next week,'" Clements said. "[W]it doesn't matter if I live at home without a proper system, it doesn't matter if I make six figures, because if I don't keep that money, it's nothing."
So, if overspending can happen to a person who claims to be a math and number person, then surely it will happen to the rest of us as well! And it does.
A lot of college students might think that because they don't have a lot of money, they don't need to study money. This could not be further from the truth. College is the perfect time to learn about money and start building smart habits around making money, spending, saving, and investing.
"College is the perfect time to develop healthy financial habits because you're a very vulnerable young person in this world and you're going to need those habits later. The sooner you control your money, the better," says Dasha Kennedy, a financial activist and creator of the International Financial Literacy Online Community that serves more than 80,000 African-American women.
On the surface, budgeting may seem daunting, but in reality, it doesn't have to be complicated. You don't have to spend hours or make complex spreadsheets. You just need to take a few simple steps and develop good habits.
Step 1: Know Your Numbers
The first step is to count your key numbers. Those are:
• Monthly income
• Fixed fee
• Variable fees
Monthly income is how often you earn from jobs, internships, financial aid, and family support. Remember: this is the salary you get after taxes (not a job or internship opportunity, nor your hourly rate).
A flat fee is what you need to pay, usually the same as your rent or phone bill.
Variable expenses are necessities and needs that vary in price and frequency, such as groceries, transportation, or entertainment.
Save. You can't just spend everything you earn; You'll have to keep some leftover expenses in your checking account to cover any expenses, and then save some money for long-term goals, such as buying your first apartment.
Now do a quick calculation:
Monthly income - a fixed fee
For the rest, you can use it on what you want but don't. However, you also have to save some.
If you have almost zero money left now, don't beat yourself up. Just recognize that this is the situation now, let's dig in and start making some adjustments. You'll be surprised how easy it is to start saving with just a few adjustments!
Step 2: Set A Budget
Making a budget is simple – based on your income and fixed expenses – how much you can spend on extra things, and how much you'll save.
A common way to create a budget that works for a lot of people is to follow the 50-30-20 rule.
This means that 50% of the money is spent on meeting your needs (rent, utilities, groceries, etc.), 30% on meeting your needs (eating out, shopping, entertainment, etc.), and 20% on savings.
3 Tips For Building The Perfect Budget
While it's not the only way to budget, it's a great place to start because it's three simple numbers. If you find that the rule doesn't work for you, you can always make adjustments. You are not locked in.
"I think it's important to start [budgeting] because you never want to be unable to pay the rent," said Nan J. Morrison, chairman and CEO of the Economic Education Committee.
If you can't save 20%, set a fixed amount that you can save each month. Then, the next time you check your finances, see if you can increase your savings — even a little bit — until it reaches at least 20%. The important thing is that you start saving now.
Step 3: Track Your Budget
You have to figure out your budgeting style, whether it's writing it down with pen and paper, setting up a spreadsheet on your computer, or using a personal finance app.
Those who like to write out their information to better retain it can use the following worksheet to make their new budget. Whether you want to print or type, this method helps to know exactly where your money is going.
"I think the things that come in super handy are a pen and a piece of paper or a spreadsheet because you can write, 'How much do I earn?' ...... It doesn't have to be very detailed, but 'what are the things I need to spend money on or I want to spend money on?' ’...... Then write down what you like to do on a regular basis and one or two things you might save for," Morrison explains.
For those who may not like to write everything out – don't worry! Online resources like Mint Budget Planner and Tracker, as well as digital tools from banks or other financial institutions, as well as automated actions like bill payments and savings, can help you create budgets that you can easily and consistently stick to.
"It [automation] plays a big role in relieving budget pressure because it does all the heavy lifting for you. Once your bank account is connected, the budgeting app will learn about different spending trends that you don't even know about. Automation also makes it easier for you to save and manage money without having to think about it," Kennedy said.
Step 4: Find Ways To Cut Expenses
Once you realize how much money you're making, how much you're spending, and it's important to have a system in place to properly track these items, set savings goals, and reduce overspending.
College students spend a lot of money on necessities such as rent, course materials, groceries, and transportation, in addition to additional expenses such as food, clothing, entertainment, and going out. Knowing where you can spend less will help you better with budgeting and saving.
Galaxy Okoro, a 23-year-old senior at Howard University, said: "I have this habit... See the price tag and just throw the money on it. "I really had to teach myself ... So, I decided... I'm going to open a savings account and I'm going to start putting checks into my savings... So, I kind of budget me at once. ”
As a health sciences student, Okoro has found ways to reduce spending on course materials.
"I like to look for deals," Okoro said. "So, before I make a lot of purchases, I make sure [that] I visit all the sites: 'Is it cheap here?' ”
"I had to do first aid this semester and our teacher recommended a first aid training package for about $30... This training package only had one set of tools, after which I couldn't really use it," Okoro explains. "So, I thought, 'OK, I'm going to Amazon,' and I found a $9 first aid kit... I just deposited $20! ”
Now, it's not that you have to cut everything just because you start budgeting – and it's fun. It just means knowing where you're spending how much money, figuring out where you can cut back, and trying to save where you can.
Do you need to buy a latte every day on your way to class? Probably not. But if it's really important to you, go for it! But then look at your budget and identify other areas where you can cut expenses. It's all about priorities: prioritize what matters to you and reduce what doesn't.
Step 5: Separate Your Checking And Savings Accounts
Saving is a two-pronged process: you need money that you can use for everyday expenses and unexpected expenses in the short term. Plus, you'll need to save savings that you won't use for a long time.
"It's all about balance," Morrison said.
You should keep some money in your checking account — don't drop it to or near zero. You will risk overdrawing your account (taking out more than in your account) and then you will be charged. That could be $25 or more. And you never know when an unexpected expense will occur, so you'll need the cash on hand to cover it.
You should set up an automatic amount to transfer to your savings account each month. If you don't have a lot of money, it doesn't have to be a lot of money, like most college students. However, if you automate it and get used to putting a small sum of money into savings each month, you will never miss it. You want to put your money where you can grow and make more money. And, the sooner you start, the more money you'll have. It's that simple!
"Separating income through checking and savings accounts is the easiest way to protect yourself from harm," Kennedy said. "I would even recommend keeping your checking and savings accounts at different banks as this is one of the easiest ways to save money and avoid the temptation to overspend or have multiple savings accounts for different reasons."
Unexpected expenses like a broken laptop, a flat tire, or illness can happen to anyone. So, you just have to be prepared. Keep some cash in your checking account at the end of each month so you don't get caught off guard when something goes wrong.
It's also important to recognize how much you want to save for the future. This can include moving after college (maybe you want to move to New York City or another big city), paying student loans, or preparing for a vacation after graduation.
These things all cost money! Accumulating credit card debt is not the solution. If you start budgeting now, you won't get stuck in a debt cycle later.
Automating with her bank's apps and digital tools helped Clements manage her money tremendously.
"My savings account has different buckets, and when it's automatically taken out of my paycheck, it's also automatically assigned to my different goals," Clements said.
She does this through a feature on her banking app, Ally.
"I usually just do all the work for me with different tools," she said.
Step 6: Set Up Regular Check-ins... With Yourself
Contrary to what you might think, budgeting doesn't require a lot of time on your part. All you have to do is:
• Decide on your budget method (e.g. using the 50-30-20 rule)
• Keep track of your budget – by writing it down, using a spreadsheet or an app
• Check yourself regularly (weekly, monthly, or at the beginning of each semester) to see if you're on track and make adjustments if necessary.
Nothing more! It's that simple.
At first, you may want to check in monthly, but if you have spending problems, you may want to check weekly how much you're spending so you don't get bogged down at the end of the month and wonder how you're going to pay your rent.
Morrison advises: "Find a way to consolidate your spending, date yourself, check it out on Sunday night or the first day of each month to see where your money is going." ”
And you don't have to do it alone.
"If you have one or two trusted friends, pick one (or two) time a year to talk about goals and investments — and your budget! — Very helpful. It puts you accountable," Morrison explained.
If you're not always "perfect" when it comes to spending or saving, don't worry. No one – not even your favorite money guru – is perfect.
The key is to start now: develop good habits and check your progress. If you overspent last month, correct it this month and get back on track. Don't beat yourself up or worse – continue to overspend month after month until the problem snowballs out of control.
Controlling your money is one of the most important things you can do to prepare for long-term financial success.
This is what I learned about budgeting
Before I start researching, reporting, and writing this article, I confess, I don't have the budget. What held me back was not knowing where to start and thinking that because I had limited income and few expenses, there was no need to start.
However, in the process of writing this article, I learned that budgeting is essential to saving and ultimately accumulating money.
I learned that everything you need to start budgeting is within easy reach and not as hard as I thought!
Just because I had limited income and I had few expenses, I believed it was a mistake in my financial journey. Now, during college, there's never been a better time to start practicing money management.
As the beginning of the month approaches, I use my savings to pay rent, and I'll start budgeting based on my income, needs, and desires – I'll use the 50-30-20 rule.
I need things like groceries and toiletries, but I also want to have money to spend on self-care like massages. My new annual savings goal is $5,000.
I think the hardest part for me was consistency and scheduling check-ins. These require a lot of discipline that I didn't have in my finances in the past.
Ironically, I was excited about the challenge. Understand how beneficial money management and budgeting is, and I hope this helps me after graduation – it's not far from me!
We only provide information display, not business behavior. The information provided in this article is for educational purposes only and not intended as professional financial advice. The author is not a financial advisor and does not guarantee the accuracy or applicability of any information provided in this article. However, readers should always seek the advice of a professional financial advisor before making any financial decisions.