Budgeting

Budgeting

A budget is making a plan for your money. Tracking income and expenses helps you to create a plan for your spending and saving.

Why do you need a budget?

If you have ever found yourself looking at your bank account and wondering where your money went, a budget can help. The most common cause of financial problems is spending more than you earn. With a flexible, sensible budget, you can take control of your money and avoid financial stress. It can help you limit spending and ensure there is enough money to do the things that you want.

How to get started?

• Build a starting budget with your best guess of what you spend in a month (on average), separated into categories like books, personal expenses, rent, phone, and entertainment.
• Track your expenses for a few months. Then, compare these figures with your previous projections. You may be surprised to see where your guesses were higher or lower.
• Once you have tracked your expenses, compare these to your income. If you are spending more than you are earning, you need to make changes.
• Be honest about “needs” vs. “wants”. Enjoying a store-bought coffee every single day is nice, but you could save up to $80/month by reducing this purchase from daily to weekly.
• Review your monthly budget for any necessary changes. Remember, a budget is fluid, meaning that it will (and should) adjust as your income and goals adjust.

Determining How Much Disposable Income You Have

Consider setting some of your income aside in a savings account, and setting limits on how much you can spend on non-essential items.

Let’s say you buy a cup of coffee on most days, grab a quick bite a couple times a week, and go out on Saturday nights for fun with friends. Your yearly spending may look like this:

▪ Coffee 4x/week @ $2.50 = $520

▪ Quick late-night snack 3x/week @ $6.50 = $1,014

▪ Weekend Fun @ $25-30 each weekend = $1,560

Your total spending would be $3,094 per year, or $12,376 for the four years of college–enough to buy a car. Considering this, make sure you’re being thoughtful about how you want to spend and save your money!

Moving forward with a flexible budget

For your budget to be useful, you need to follow it for more than a few months. Tracking your daily purchases only takes a few minutes. It takes even less time with a budgeting app that links to your bank and credit card accounts and automatically categorizes your purchases. Finding it hard to stick to your budget? Some of your figures may be unrealistic so review and adjust as needed. Perhaps you need to allocate more to books and travel, and less to clothing. The best budget is one that grows and changes to meet your needs

What can you do now?

Setting up financial goals will help you plan and prioritize what’s important to you, and how you should set up a budget to align with your interests. Goals will also help you be more aware of how you spend your money day-to-day. It’s a good idea to write out these goals, and to stay mindful of them as you go through college.

If you like a pen and paper approach, you can try a simple tracking sheet like this one from Balance Pro. If you prefer a phone app, there are many to choose from and most are free. Read reviews to determine what makes the most sense for you.