Money Managing Basics
As anyone alive can tell you, everyone wants something. That includes you.
A sense of feeling truly "fufilled" comes with having things we want. If you want something money can buy, or just want money in your pocket, we can absolutely help with that. In fact, you’ve already completed "Step 1." The thing you want is now your first official money goal!
Defining Money Goals
There are different types of money goals, and they sit somewhere on a spectrum between short-term and long-term.
Saving up for a weekend dinner date? The newest Madden or Final Fantasy game? Those are short-term goals. They tend to be one-time expenses that are easy to recoup. Ideally, all of your luxury spending should fall under this umbrella.
Aiming to pay off a credit card in 6 months? Or settle the vet debt for Wiz the cat’s emergency surgery? Medium-term goals. As “medium” suggests, these are the goals that fall between short-term and long-term on the spectrum. We’re talking a month to a year.
Want to eliminate that student loan in 5 years instead of 10? Or save up for a down payment on a house? Long-term goals. These goals usually involve large sums of money paid off in small chunks over at least a few years.
What do these money goals have in common?
1. You can translate them into a dollar amount.
Example: Time to decide whether Saturday dinner is pizza or sushi. Or a hideous pizza/sushi chimera! It’s your money, Dr. Moreau.
2. You can make choices every day to move toward - or away from - your money goal.
Example: Saving up for the Grand Saturday Pizzushi Experiment could mean slapping together a PB&J, or five, for lunch during the week. How many days must you deny yourself the joys of campus eateries? Depends on how much pizza and sushi you need for whatever vile taste test you’re performing on Saturday. We won't judge.
Patience and Discipline = Savings
Small and reasonable cutbacks like these add up over time. A couple of weeks of PB&Js for lunch instead of pricey campus burgers will buy that copy of Madden. Bringing a water bottle from home and skipping the fountain drinks or bottled water may cut that time down by a few more days. How soon you need the money affects how tight your belt must become, however. Sticking with lunchtime PB&J + BYOWB might be enough to tame that credit card in a matter of months.
Living in a small shared apartment full of… unique… smells is not awesome, but if doing that for long enough lets you afford your dream house. Maybe the dream house is worth a few months in that situation, or maybe it’s not. It depends on your priorities.
As you can see, saving is all about delayed gratification. You figure out how much you need and how soon you need it, and put a specific amount you can afford toward that goal every day, week, or month.
All of which is easy to say, but tough to accomplish, especially if you don’t know where to start. That’s where budgeting comes in.
How to Budget: Create a Spreadsheet
Here’s the thing: a budget is, at the basic level, just a scorecard. If you track college football stats, a budget’s only a little bit more complex. The real pain of creating a budget is emotional – being honest with yourself about your ups and downs is hard enough without a written record of them staring you in the face. But budgeting helps you solve problems and gives you the ability to handle adversity in life. Here are some steps.
Step 1: Create a list of your money goals, and put a checkbox by each one. You’re going to check these off as you accomplish them. The list can be as long or short as you like, but we suggest at least one of each type of goal. If you can’t think of any long or medium term goals, that’s fine. The bare minimum we recommend to start is one short-term goal. Make it something fun for you that won’t take a long time to achieve – a dinner date, a mani/pedi, a video game. Someone who’s never exercised before doesn’t start with twenty-pound weights, right?
Step 2: Create a new spreadsheet. We recommend doing this on a desktop or laptop with a program like Microsoft Excel or Google Sheets, since they can do the math for you. It’s also wise to have your latest bank statement ready so you can pull real numbers from it.
Start with three columns: Income, Necessities, and Entertainment.
Income is the amount you’re taking home every month – every recurring deposit in the "Deposits" column on your bank statement adds to this total. Don’t add any one-time deposits to the list!
The Necessities column is a list of the recurring bills and expenses you must pay every month (e.g. rent/mortgage, groceries, utilities, etc.).
The Entertainment column is a list of inessential recurring expenses (e.g. streaming services, dating apps, online gaming, etc.). Again, ignore one-time expenses – you want to know how much you will pay this coming month.
Once you’re used to this process, adding an extra column for one-time expenses is a great idea, but they’re necessarily unpredictable. Gotta walk before you can run, you know?
After listing your income and expenses, add the numbers in each column together. Add the Necessities and Entertainment totals together to find out how much you’re spending a month. Ideally, the total in the Income column will exceed your combined total expenses. Don't freak out if you find you’re spending more than you earn; remember, that’s the problem we’re trying to solve!
If you have any one-time expenses scheduled in the next month (e.g. if you plan to buy Girl Scout cookies), add those to the combined total. Again, you want to know exactly how much money you have committed to spending in the next month before you go to the next step.
Figure out which of your expenses you can reduce or eliminate. Start in the Entertainment column. Any non-essential, one-time expenses may need to go. Some choices will be easy. You’ve probably signed up for a few recurring services that you never thought about again. Others require a little more thought. For example, Netflix and Disney+ are both great services, but do you need both of them?
When your expense total is less than your income by a sufficient amount, earmark a percentage of the cash left over for saving. 10% is the easiest to do in your head. Just look at the total amount left and move the decimal point to the left by one number. So if you’re making $650 (example number) a month after expenses, you can put $65.00 toward your goal. The rest is your budget for the month.
Repeat this process each month. Some months your budgeting plan may fail, and that's okay. Do your best to stick to your budget each month and you will suceed. Trust the process.
Opening a Savings Account
Just like a plate of cookies sitting on the counter, temptation is at the height of it's power when it’s right in front of you. And that is why you need to store your savings in a bank or credit union account where it’s NOT right in front of you.
Plenty of banks and credit unions market themselves to college students. They all want your cash. Sorting through their offers to pick the best one can be hard.
A few things to look for:
• A savings account with higher interest earnings, so the bank helps you reach your goal faster.
• A checking account for daily spending with lots of ways to see, access and handle your money: ATMs, online check deposit, easy money transfer, etc.
• Overdraft protection to help you avoid expensive overdraft fees.
• An "auto-transfer” feature that transfers money from checking to savings, is a great feature to tuck away money to put towards your goal.
Credit Cards
A credit card can be used for good or evil. On the good side, managing a credit card well can help you build your “credit history,” so other lenders (such as a lender who might help you buy a house someday) treat you better later in life. And a credit card simply makes cash for a purchase available to you today, so that you can “pay yourself back” later. On the evil side, “easy money” today can make life harder later. If you can't pay down your credit card in full every month, or make timely consistent payments, you might owe more and more each month, and missing a payment can really hurt your credit history. Credit can get out of control fast – so stick to a plan and stay focused.
As a college student you will get SO many credit card offers. Be selective - look for ones that work for your life, offering a grace period (extended deadline) for payments, low penalties, or perhaps rewards that match your spending needs. For example, if you drive a lot, a card that offers rewards for fuel purchases might make sense.
Managing Household Bills
Managing household bills is another key to money success. If you plan to rent, you need to sweat the details of your lease. Rules about pets, and “rent due” deadlines, must be followed. If not, getting booted from the place for breaking your lease terms can make it very difficult to rent again. When you sign a lease, it’s a legal contract – if you share an apartment, it’s best if everyone signs the lease and there are clear expectations.
Sharing utility expenses like water and electricity should get figured out upfront. Sometimes, putting one roommate in charge of keeping track of household bills can help.
Renters’ insurance can help protect you from theft, accidental property damage, or even getting sued when your (arguably sober) classmate trips over your dog and gets hurt.
Student Loans
The last thing we must discuss is student loans.
Many college students take advantage of student loans. The question is, will the student loan take advantage of you?
Student loans can be for a lot of money, because college is expensive. With a student loan, your school expenses are spread out over time. You’ll spend maybe four years in college, then you might spend 10 or 20 years paying the loan back, with a payment every month. So, resist the temptation to take out more than you need, even if they offer it – extra beverage money might taste good now, but 20 years of extra expenses will leave a bad taste in anyone’s mouth.
Most people look for federal student loans such as Stafford loans and Perkins loans. These programs are sponsored by the US government and provide some flexibility where needed. This includes things like deferring (delaying) your payments, or even getting a loan forgiven if you take on jobs that benefit the public after graduation.