It's time to start a budget
It’s time to start a budget
Why Budget?
Be honest: you saw the word “budget” and flinched, didn’t you? That’s okay – we get it. If you didn’t, that’s fine too. We guarantee someone else did, though. Because – real talk – budgets are intimidating!
You hear “budget,” and you think of your parents (or someone else’s parents) staring at a computer screen with a worried look on their face, seeming to slouch even if they have perfect posture, sighing in frustration.
Or maybe you just grimace at the prospect of keeping a meticulous record of all the money you blow on fun stuff you don’t need. Because there’s a world of difference between suspecting you’re making a bad decision and listing all your bad decisions and how much they cost you. Again, we get it.
But here’s the thing: [you keep your toothbrush where it belongs, so you can find it every time you need it. You keep your computer where it belongs, so when you need to use it, it’s right there.
Why wouldn’t you do the same with your money?
A budget helps you keep your money going where it’s supposed to go. It’s a plan on paper that shows what money comes in each month, and the things you plan to spend it on. It’s organizing your money the way you organize your room (if you’re into that). Know where dollars go, so you don’t have to wonder where they went later. IFFY ON THIS, BUT CAN’T FIGURE OUT A BETTER SOLUTION.]
Creating a workable budget while in college will help you:
Understand where your money comes from and where it goes
Prep for money emergencies, such as getting your car fixed
Set goals for your money – saving up to buy a new (or gently used!) computer, for instance
Manage your debts – credit cards, student loans, car payments, etc.
Start truly “adulting” – working toward long-term financial goals, realistically!
Follow these steps to get your budget organized:
Set your goals.
What one to three things would you want to accomplish financially in the next three months, the next year, and the next three years? Make a list of those goals.
Each one has a dollar amount attached. If you don’t already know it, find out. Write each amount by each goal.
Determine your income.
Figure out your available income. Don’t include any pay you can’t expect in a normal month, such as overtime or tips.
Determine your expenses.
[Some apps WHICH APPS?] can help you with this. If you have a bank or credit union account, you can save time by consulting your latest statement.
Spend a month tracking [exactly] where your money goes currently[, down to the penny]. Your bank statement will be a big help with this as well. Make sure none of the fees have changed since you received the statement, though, and remember to separate fixed expenses by schedule – if you pay a given fee every six months, you don’t want it listed in the same column as your monthly fees!
Some expenses are fixed, others are flexible. Fixed expenses (rent, car payments, student loan payments, other recurring fees) don’t vary from payment to payment, and you’re notified in advance if and when they do change. Flexible expenses (food, clothing, entertainment) vary from month to month, sometimes wildly, and they rarely recur.
We mentioned this earlier, but it’s important enough to highlight: not every fixed expense is billed monthly. For example, insurance may be billed quarterly, semi-annually, or yearly, while tuition fees are billed per semester. This sounds obvious, but fees that aren’t monthly can sneak up on you. Paying your rent, tuition, and insurance off on the same day will break your heart, trust us.
Create a personalized budget. Whether on a spreadsheet program, an app, or good old paper, you can do this!
[Your budget is a prioritized spending plan showing how much money you have, where it needs to go, and how much, if any, is left over. ADEQUATE?]
Your top priority should be paying for [necessities GOOD TERM?] such as fixed expenses and basic groceries.
The next highest priority is your [savings GOOD TERM?] – that is, the money you’re setting aside to pay for the goals you set in Step 1. For example, you might set $20/month aside for a new video game.
Once your necessities and savings are sorted out, any money left over is your “fun budget” for the month – you can spend it on whatever you like, whenever you like! Just don’t dip into your necessities or savings unless you absolutely have to..
Your expenses should be less than or equal to your total income. If they’re not, don’t panic! You can fix that.
If your income is not enough to cover your expenses, adjust your budget (and your spending!) by deciding which expenses can be reduced. Sure, you like Netflix and Disney+, but which one do you use more?
Pay yourself first!
Save as much as you can every month. Even a small amount can make a big difference if you keep it up.
Aspire to establish an emergency savings fund large enough to cover three to six months of your living expenses. Don’t worry if you can’t manage that, though – plenty of people can’t! Instead, view every dollar saved as a small victory.
When your emergency fund is large enough that you can afford a costly catastrophe or two, you can begin to pivot toward saving for the goals you set. “Begin” is the operative word there, though – only chumps bet their life savings on a single horse race. Divvying up your savings into two pools is a good start – if you put $10 toward emergencies last month, you might put $9 toward emergencies and $1 toward a goal this month, and so on.
Use credit wisely.
A good way to use your credit card is to set up one or two smaller fixed expenses (maybe your TV streaming service or cellphone bill) for online auto-payment through your credit card, which helps you build a history of using credit safely and responsibly. A word of caution, however - this approach only works if you can pay your credit card bill on time and in full every single month.
If you enjoy wilding out on the weekends every once in a while, don’t use your credit card to pay for that. You may love to party, but when you wake up on Monday and find out you overspent, the party will come to a sudden stop. Stick to your fun budget instead – that’s what it’s for! And if you’ve got like five bucks left in your fun budget for the month, any partying will just have to wait.
A budget is a living thing, so treat it like one.
Once you get in the habit of following your budget, it’s tempting to do so blindly and assume you’re still living within your means. This is about as bad an idea as watering your plants once and assuming they’ll be fine. Your budget needs regular TLC to work, and we don’t mean printing it out and holding it while you binge-watch 90-Day Fiancée. Review and update your budget regularly to be sure you’re still living within it, and that it still reflects your real needs.
If your spending plan is helping you reach your goals, life’s good. If not, make some adjustments or create a new budget that better meets your needs.