What is a budget?
It is a financial plan that helps you track your money, make informed spending decisions, and plan for your financial goals.
7 Easy steps to a successful budget
- Determine how long you would like to track your expenses
- Monthly (Recommended)
- Academic year or Calendar year
- Choose the tool you are going to use to track your budget
- Budgeting app
- Pen and paper
- Determine your monthly income (Take home pay)
- Pay from work
- Family contributions
- Financial aid (Scholarships, grants, and loans)
- Identify your expenses
- Record everything that you spend
- Group expenses into fixed and variable
- Fixed expenses are charges that stay the same from month to month (Rent, car, or insurance)
- Variable expense- changes and can vary from month to month (Food, gas, entertainment)
- Save for Emergencies
- Pay yourself first every month
- Typical emergency fund covers three to six months of expenses
- Balance your budget
- Compare income versus expenses
- If income is higher than expenses:
- Consider adding more to your emergency fund
- Consider investing
- Borrow less loans
- If income is lower than expenses:
- Find ways to increase your income
- Spend less (Less eating out, bring food from home, evaluate if the item is a want or a need)
- Manage your budget
- Treat your budget as a living document
- Update on a regular basis
- Forgive small spending mistakes, then get back on track
Tips to avoid impulse buys
Ask yourself these questions before buying:
- What do I need this for?
- Can I afford this item?
- If I buy this item now, will I still be happy that I bought it a month from now?
- Do I need to save this money for a financial goal?
- Will this item go on sale? Should I wait to buy it?
- Does it matter if I buy brand-name or can I get by with generic?
Here are some important points to keep in mind as you build your budget and determine what comprises your income and expenses.
- Overestimate your expenses. It’s better to overestimate your expenses and have money left over at the end of the month.
- Underestimate your income. It’s better to end up with an unexpected bonus at the end of the month, than not enough funds to cover your expenses.
- Prepare for the unexpected by building an emergency fund.
- Planning to move off campus?
- Unexpected car repair?
- Starting an internship next semester? Adjust your budget to save for buying new clothes to wear to work.
- Think about how you will manage your money between leaving school and finding a job—this is a time when an emergency fund can really help out.
Differentiate Between Needs and Wants
One benefit of budgeting is that it helps you determine if you really need something versus if you just want it.
- Start by making a list of things you’d like to save up for.
- Identify whether each item on the list is something you absolutely need or is really a want.
- If you decide you want something, ask yourself if you will still be happy you bought the item in a month.
- Next, prioritize each item on the list.
- Once you have set your priorities, you can then determine whether you should incorporate each item into your budget.
Manage Your Budget
Keeping track of all of your spending may seem like a lot of work. But if you’re organized, keep good records, and use some of the following tips, you’ll find it’s easier than you may think.
- Record your actual expenses: Have you noticed how fast your cash disappears? To get a handle on where you cash is going, carry a small notebook or use a phone app to record even the smallest expenditures such as coffee, movie tickets, snacks, and parking. Some expenses that are often ignored include music downloads, charges for extra cell phone usage, and entertainment expenses. Search for an online tool to assist you—many are free!
- Organize your records: Decide what system you’re going to use to track and organize your financial information.
- Create a routine: Manage your money on a regular basis, and record your expenses and income regularly. If you find that you can’t record your expenses every day, then record them weekly. If you wait longer than two weeks to record information, you may forget some transactions and be overwhelmed by the amount of information you need to enter.
- Include a category in your budget called “Unusual.”: There will be some expenses every month that won’t fall neatly into one category or that you couldn’t have planned for. An “Unusual” category will help you budget for these occasional expenses.
- Share expenses: If you have roommates try to split household expenses to help save money. (Toilet paper, paper towels, trash bags)
- Review your spending for little items that add up to big monthly expenditures: The daily cup of coffee and soda at a vending machine will add up. Consider packing your lunch rather than eating out every day. Spending $10 a day eating out during the week translates to $50 a week and $200 a month. A $5 packed lunch translates into a savings of $1,200 a year. Save even more by looking for ways to manage and reduce your transportation and entertainment expenses.
- Make your financial aid credit balance refund last: If your school applies your financial aid to your tuition and fees and there’s money left over, the school will refund that money to you so you can use it for other education-related expenses (textbooks, transportation, food, etc.). Remember that your financial aid is supposed to help you cover your cost of attendance for the whole semester or term, so be sure to make that refund stretch over time rather than spending it all as soon as you get it.
- Comparison shop: Comparison shopping is simply using common sense to compare products in an attempt to get the best prices and best value. This means doing a little research before running out to buy something, especially when it comes to more expensive items. Make the most of tools like phone apps for comparing prices and value.
- Use credit cards wisely: Think very carefully before you decide to get your first credit card. Is a credit card really necessary, or would another payment option work just as well? If you receive a credit card offer in the mail, don’t feel obligated to accept it. Limit the number of cards you get.
- Don't spend more on your credit card than you can afford to pay in full on a monthly basis: Responsible use of credit cards can be a shopping convenience and help you establish a solid credit rating and avoid financial problems. Consider signing up for electronic payment reminders, balance notices, and billing statement notifications from your credit card provider.
Click on the image to get this simple budget template: