Starting college means new freedom, but it also means new responsibilities. And one of the biggest is money management. Keep an eye on expenses, or you could end up needing extra loans—which add up to extra debt after college.
Setting Up Your Budget Plan
Creating a budget involves two basic ideas: how much money is coming in and how much is going out. Your goal is to make sure that these two figures balance out—or, even better, that you have more coming in than going out.
Start by breaking out your year into manageable increments. While you could use weeks, quarters, semesters or any other increment, you'll probably want to consider breaking the school year out by months. Utility and rent bills are due on a monthly basis, and you'll probably find that reviewing your budget when those bills are due will keep you on top of things, but won't bog you down.
Figuring Out What You've Got
Once you've set your budget schedule, figure out how much money you can count on each month. Start by adding up all your sources of income for the year: student loans, scholarships, work-study funds, parental contributions, wages from a part-time job, savings you plan to spend this year on school expenses, etc.
Divide that amount by the number of months you'll be in school. If you plan to use that money to support yourself during the summer as well, you'll be dividing your total income by 12. Otherwise, divide your income by the number of months you will be in school. The result is your monthly income—the amount of money you can spend each month.
When you're figuring out your income, be sure to keep in mind when you'll be receiving your money. If you have a loan or scholarship that won't be delivered until a particular semester, make sure that you don't figure that money into your monthly income until you have the cash in hand.
Figuring Out What You'll Need
Your next step is to add up your monthly expenses. This will be a little harder than figuring out your income because in a lot of cases, you'll be estimating your expenses.
Start with your biggest expenses—the ones that you'll be able to figure out with some accuracy: your tuition and housing costs (rent or dorm fees). Divide your yearly tuition by the number of months in your budget (to spread the cost evenly).
Next, add in the amount you'll expect to pay for books and school supplies. Costs will vary, but most students spend about $300 per semester for books. Divide by the number of months per semester to determine your monthly book/supply budget.
You'll also have to add in all the living costs you'll incur. Remember to include food, utilities, toiletries, car-related costs (gas, parking, insurance, car payments), laundry, travel expenses (to go home for holidays) and entertainment. Make your best estimate until you develop a record of how much you typically spend.
The Moment of Truth
Once you've figured your monthly income and your estimated monthly expenditures, check to see if you've got enough money to cover your expenses. If you don't have enough, you'll need to review your expenses to see how you can either cut corners or maximize your income through a part-time job or other means.
Keeping on top of how much you have to spend each month will help you make additional spending decisions—whether you want to have a car with you at school, how often you will eat out, whether or not you will go to the movies.
More Budgeting Tips
- Keep a record of your expenses for at least six months while you are setting up your budget. It'll give you a good sense of how much you are spending on all kinds of living and entertainment costs that can be hard to estimate.
- When big expenses hit that overwhelm your monthly income, find out if you can split up your payments and spread them out over several months. For example, some schools will allow you to set up a tuition payment plan so you aren't responsible for the whole lump sum at once.
- Resist the temptation to 'solve' budgeting problems with credit cards. If you choose to use them, credit cards should be used only for expenses you know you can pay back immediately. The interest you'll accrue on your expense is typically much higher than the interest you'd pay on a student loan.
Keep on top of your budget and you'll not only keep your balance sheet in the black throughout college. You'll also develop valuable money management skills that can help you after graduation as well.
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