closeup of male using calculator | how to make a budget

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The college years are typically our first experience of managing adult finances—and while that responsibility can be empowering, it calls for conscious planning. Our spending habits have consequences that go beyond our immediate financial dilemmas (“Can I afford to go out tonight?”) and reverberate through our futures. In a recent Student Health 101 survey, 100 percent of student respondents thought keeping a budget would help them better manage their money. These eight steps will get you to a spending plan that will keep you solvent through college and life.

1. What is your actual current spending?

“The most important step is to understand where your money really is going. If you can’t get a handle on your spending, it will be difficult to take control and make changes.”
—Larry Pike, financial planner and advisor at Client Priority Financial Advisors LLC in Needham, Massachusetts

1. Work through your financial statements for at least two recent, typical months.

Categorize all your costs. You will probably want to include these categories and maybe others:

  • Education and school supplies
  • Groceries and dining out
  • Entertainment
  • Fitness and uninsured health care
  • Housing and utilities/cable or streaming services/internet
  • Cell phone
  • Insurance
  • Transport, gas, and car lease/loan
  • Shopping/clothing
  • Gifts

2. Add your costs in each category.

  • Try Mint.com or a similar program.
  • Consider rounding up the numbers: It’s safer to overestimate than underestimate your spending.
  • Divide your total costs by the number of months you’ve analyzed to get your regular average monthly spending.

3. Identify your irregular or nonrecurring expenses, like tuition (if you pay it yourself), car insurance, holiday costs, and vacations.

Add up these annual costs and divide by 12 to get your occasional average monthly spending.

4. Regular average monthly spending + occasional average monthly spending = average monthly spending.

2. What are your goals?

“The biggest challenge to budgeting is the idea that because students have limited resources, they don’t need to take steps to take control of their finances. They do.”
—Bryan Ashton, assistant director at the Student Wellness Center at The Ohio State University, Columbus

Identify your goals. Include goals that aren’t strictly financial but have significant financial implications. How much should you allocate each month to meet these goals?

Type of goalExampleCostsHow much to spend or save each month
SocialEat out with friends 2-3 times a weekAbove and beyond grocery costs (convenience is expensive)Spend $200/month
AcademicGo to graduate school– Tuition
– Reduced earnings over 2 years
– Standardized test fees
– Application fees
– Travel for interviews
Spend $100/month
FinancialDevelop an emergency fund to reduce financial stressSeveral hundred dollars set aside to help reduce the stress of unexpected eventsSave $50/month

3. What money is coming in?

“If we lived in a society in which there was no such thing as credit, you wouldn’t be able to claim you can’t live within your income. You just would.”
— Larry Pike

Speaking of credit, here are a few things you should know to keep yours in check.

What are your reliable sources of income? When do they come in? Include:

  • Family support
  • Earnings from jobs (if these are unpredictable, go with a cautious estimation)
  • Student loans
  • Scholarships and grants
  • Any other sources

Add up your income. Round down the numbers if you want to: It’s safer to underestimate than overestimate your income. Divide your total income by 12 to get your average monthly income.

Compare your average monthly spending (step 1) and average monthly income.

4. What do you need? What do you want?

“Now that you have a handle on your cash inflows and outflows, it’s time to prioritize how you spend your money. The key is to be realistic about what you need versus what you want. The greatest value in making a budget is seeing where your actual dollars have gone. Then we realize how much of our spending is discretionary.”
—Larry Pike

Identify your monthly needs. These are costs that must be met no matter what, such as tuition, housing, groceries, health care, and transport to work or school.

Then identify your monthly wants: those discretionary costs. Be realistic. Account for pizza nights, Netflix, and that sixth pair of sneakers.

Add up the average of both your monthly wants and needs to establish your ideal monthly wants spending limit. Consider how to reduce those discretionary costs as necessary. Here are some helpful tips to manage spending.

5. What's your new weekly allowance?

“Convenience has a cost. Eating out is more expensive than making your own meals, and buying coffee is more expensive than brewing your own. This is where you have the ability to really affect your budget.”
—Bryan Ashton

Divide your new spending limit by 4.5. This number is your weekly allowance.

Consider withdrawing your weekly allowance amount from your bank at the beginning of the week. Once it’s gone…it’s gone. Going cash-only makes it easier to track and adjust your spending.

Think about cash flow. Your income likely isn’t consistent each month. You need money in your account when the bills are due, even though your sources of income are less regular. Some funds, like student loans, are a one- or two-time disbursement. You may get a large check beyond what you need that month; make sure that money is saved to meet each future month’s expenses.

6. What's your savings account situation?

As a student, you’re not expected to save money for retirement. But you do need to manage your cash flow and prepare for those irregular or infrequent bills. Plus, it can really pay off to save up now. Here’s how (and why) to start investing, on any budget.

When you receive a large payment, like the portion of a student loan intended for living expenses (a “refund check”), deposit it into your savings account.

Refer back to your occasional average monthly spending—your anticipated irregular expenses (step 1). Also, consider any goals (step 2) that require you to save. You will need to hold some funds and make monthly transfers to your checking account to cover your budgeted monthly expenses or for budgeted occasional expenses as they occur.

7. What's your checking account situation?

It’s simple: Keep only enough money in your checking account each month to cover your expenses, based on your budget and monthly wants spending limit.

Refer back to your regular average monthly spending (step 1), adjusted to take account of your new monthly wants spending limit (step 4).

Each month, automatically transfer the appropriate amount to your checking account. This way, your lump sums function like a regular paycheck, so you won’t spend money that you’ll need for future expenses. Adjust regularly as your income or expenses change.

“The AllBudget2 app for students details the common expenses that college students are expected to worry about and has a simple user interface.”
—Petah S., Georgia Gwinnett College, Lawrenceville

“NerdWallet is great for tracking your credit score and providing articles based on finance and savings. Investment apps like Acorns or Robinhood are great if you have money to put away. I use Google Sheets and Excel to track my budget, and I use the online tools available from my bank and credit card companies.”
—Daniel M., Saginaw Valley State University, Michigan

“YNAB [You Need a Budget] costs money but is powerful and teaches good budgeting principles.”
—Chris C., University of Rochester, New York

“Google Sheets. It is literally just an Excel spreadsheet you can access anywhere and is backed up in case your computer crashes.”
—Tesia C., Emory University, Atlanta, Georgia

“See if your bank or credit union offers an app. It’s the quickest and most direct way to monitor your money.”
—Nathan J., University of North Alabama, Florence



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Article sources

Bryan Ashton, BSBA, assistant director, Student Wellness Center, The Ohio State University, Columbus.

Larry Pike, CFA, financial planner and advisor at Client Priority Financial Advisors LLC, Needham, Massachusetts.

Student Health 101 survey, August 2019.