One thing is true about money. There is never enough of it! It can evaporate without your knowing where it went. Whether you are saving for college or spending now on college, let's make sure you have enough to cover what is really important to you.
Want to Take Control of Your Future?
Let's say your goal is to graduate in four years, with low credit card debt and no large loans to hold you back. How you spend your money now can make a real difference in reaching this goal.
The word "budget" might conjure images of shopping the bargain aisles. But think of it as telling your money where to go instead of wondering where it went. To start, you need a plan—a personal spending plan—designed to help you keep more money in your pocket.
Your Personal Spending Plan in Three Easy Steps
1. Income. The first step is to estimate the monthly income you use to live on. If you get your income in big chunks, divide it up into monthly amounts. For example, if you get a loan disbursement for one semester, divide it by the number of months in the semester.
Do not include income you spend on college tuition and required fees. This is a budget for spending on your personal needs.
Your Monthly Income
$_____ Job or other work
$_____ Payments to you for personal expenses (e.g. from your parents)
$_____ Payments made on your behalf for your personal expenses (e.g. for food/housing)
$_____ Loans or financial aid that you do not spend on college tuition or fees
2. Required spending. The next step is to get a grip on spending that's required—not optional. You can spend a lot, a little, or even nothing on these items, but you have to take care of them.
Enter the amount you spend monthly in each category (or guess what you will spend). Don't worry if the amount is not exact. It's your budget, and you can change it. If you don't spend anything on a category, put zero. (For example, if you live for free at your parents' home.) If you don't spend money in a category every month, estimate what you spend in a year and divide by 12.
Your Monthly Required Spending
$_____ Housing (and everything that goes with it, such as electricity and water)
$_____ Food (basic supplies, not what you spend eating out or partying)
$_____ Personal upkeep (clothing, haircuts, laundry, etc.)
$_____ School stuff (books, equipment, computer, and other supplies)
$_____ Transportation (travel home, car payments, gas, and maintenance expenses)
$_____ Insurance (to cover your health and your car if you own one)
$_____ Health (required to maintain your health, such as medication)
$_____ Required debt payments
$_____ Income taxes
Surprised to see savings on this list? A smart spender knows that a) emergencies happen (and can be ruinous financially), b) cash in hand means you can take advantage of bargains in your required spending areas, and c) you can save for long-term goals, such as a car, new computer, travel, or college tuition.
3. Optional spending. Wait a minute! What about cell phone, movies, concerts, lattes, etc.? As important as they might be to you, they are optional.
Enter the monthly amount you spend (or plan to spend) in each category. Don't worry if it is not exact.
Your Monthly Optional Spending
$____ Eating out and snacks
$____ Telephone/Cell phone
$____ TV and online access
$____ Entertainment (parties, events, movies, concerts, games, music, etc.)
$____ Memberships and donations (gym, club, spiritual, etc.)
$____ Personal extras (cosmetics, massage, facials, sports equipment, etc.)
$____ Other (gifts, vacations, travel, etc.)
Some optional items might seem extremely important to you. In that case, you need to find enough funds to cover them after you have taken care of your required spending.
Your Personal Spending Moment of Truth
Subtract your total required spending from your total income.
$___ Total monthly income
$___ Required monthly spending
$___ Available for optional monthly spending
If you don't like what you see, it's time to make some changes. For example, many students think they need a car in college. Maybe you should sell your car and take the bus or use a bike. If credit card debt keeps piling up, start using cash or a debit card.
Tips for Getting Your Personal Spending Under Control
- Set some spending goals. Do you want to move off campus? Get a new computer? Reduce your debt? Such goals are very motivating!
- Track everything you spend for one month. Write it down as you spend it, whether you use cash, credit, or debit accounts. You might be surprised to see how much you spend on those energy drinks or lottery tickets. One $4 drink per day adds up to over $100 a month!
- Transfer savings automatically from your checking account. Saving is far less painful if you don't have to lift a finger to do it.
- Take another look at your required spending. Could you add a roommate and cut your housing cost in half? Could you and your friend trade haircuts? Could you sell your car and eliminate the insurance cost?
- Use credit cards wisely. They can be very handy. But amassing debt can be quite a problem. Use cards only to cover expenses already in your spending plan. And pay the entire amount off every month if you can.
- Work. If you have time to work even a few hours a week, consider it. Babysitting, tutoring, and pet care can be remarkably lucrative. Your parents might be willing to part with more of their own money, or put it in a savings account for you, if you work for it.
- Plan to be spontaneous. If you love to act on the spur of the moment, set aside some funds just for that.
Disciplined spending can become a lifelong habit, one that will return many dividends in the years ahead!
Information in this article is of a general nature. It is provided by COLLEGEdata for educational purposes only and may not apply to you or your situation. Please consult a financial or legal advisor before acting on such information. COLLEGEdata is a service of 1st Financial Bank USA, a provider of financial services.