It sets a course for managing sound financial goals later in life. Creating the budget is the hardest part of the process. Here is how every student can create and maintain an effective budget for college.
Understand the Situation and Expectations
If your parents, spouse or other family members will be involved with your college finances, then start the budgeting process with a discussion to ensure everyone understands the situation and expectations about who pays for what and how decisions will be made. Do not just consider college tuition costs but think about whether you will have a regular stream of funds to draw on for expenses or will be expected to have a job.
Determine expectations about reimbursement for any costs paid on your behalf during the school year. If family will be helping you take out an auto loan or personal loan, decide who will be responsible for making the payments.
If they are providing you with a credit card, talk about what the card is to be used for and whether there is an upper dollar limit. Clarify whether the financial relationship covers summer and winter breaks.
Determine Your Timeframe
Decide what timeframe your budget will cover. It is easier to create a budget for a shorter period of time, but for a college student it may make sense to cover a semester, the school year, or even all years that you will be pursuing your education.
Your expenses and income are likely to be different during the school year versus summer, so be sure to take this into account.
Identify Income and Expenses
Create a list of all expected income sources. Include the obvious, such as a part-time job, internship, scholarships, work-study and grants. Incorporate family contributions, money you have saved, and other cash you expect to receive from outside sources.
Preparing an accurate tally of your income is only half of determining how much you can afford to spend. The other critical piece is knowing your expenses.
Typical college student expenses are tuition and fees, textbooks and supplies, room and board (or rent and utilities), groceries and personal care items. Other costs may include transportation, health insurance, cell phone, dining out, entertainment and activities, clothing, and perhaps loan payments.
Plan for one-time only purchases like a laptop or printer, as well as everyday expenses such as gas. Remember to include well-being expenses for exercise and pleasure travel.
As you prepare the list of anticipated expenditures, consider which items are fixed expenses you need to have versus variable ones where you can choose whether and how much to spend. Differentiating between needs and wants lays out a feasible budget with flexibility for deciding where to make cuts if necessary.
Deal With an Excess or Shortfall
Subtract total expenses from income to determine your solvency. A positive result means you have excess money for other uses. Consider setting some excess aside to cover emergencies or unexpected expenses.
Beyond that, you could use it to pay down debt or save for the future. If your calculation shows a shortfall, then you need to either increase your income or review your variable expenses and identify where to cut back.
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Manage and Make Adjustments
Having a good budget requires you to actively manage it and make necessary adjustments. There are apps or spreadsheet templates that help with this. Make it a habit to frequently record your income and where you spend money, even the smallest expenditures.
Adjust the budget if you find yourself spending more on certain items than you planned or your needs change. Like with fixing an initial budget shortfall, adjusting means either finding an additional source of income, or reducing spending in at least one area.
The situation as a college student may seem unique, but budgeting provides a valuable foundation throughout life. Your future finances and goals are likely to be even more complex, so learning to create, stick with and adjust a sound budget now will help you build a stable money position in the future.
Image Credit: college budget 101 by envato.com
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