Personal Finance: Budgeting Basics – College Edition
I just got off the phone with my sister because, sweetheart that she is, she let me walk her through the basics of a budget. My parents were pretty good at setting us up with the idea of budgeting, but this is her first part-time job making the “big bucks”, and she wanted a refresher.
It was good for me, too, to go back to basics. My budgeting spreadsheet is complicated (in a good way), but stepping back allowed me to reassess my own stuff, too. I have three different savings accounts and a cash jar for fun money. We have more bills and financial responsibility. It’s a system my husband and I have perfected separately, and then managed together.
However, for someone just starting out, it’s a little much. So what does one need to know to start a budget. Say, making $550/month and in college. NOTE: While this post was inspired by my oh-so-wonderful sister, none of the numbers I’m going to use reflect her financial status. Just because we’re transparent with each other DOES NOT her money is transparent to the world. Anyway, so a college student with $550/month.
First thing, look at savings options.
While I didn’t have access to a 401k in my college jobs, both my sister and my husband did. Even if you’re just contributing enough for the match (generally 3%), this is always, always a good idea! In this student’s case, that’s going to be about $16.50/month, which isn’t a lot. However, $16.50/month during the school year (9 months) during college (4 years) adds up to $594 without interest or match.
Next, detail all your expenses.
In college, I pretty much had gas, my compassion child, and coffee if I wanted it. Not everyone is that lucky, and it’ll affect the budget. I could have had more expenses too, but my mom took care of insurance and phone coverage. Thanks, Mom! Plus, I’m a saver and spending averse. So I mostly saved the heck out of my money and then went to Israel my Freshman year and Europe my Junior year.
One thing I wish I would been budgeting into my expenses category: student loans. If I put $50/pay period towards them, I would be much better off. That’s $1,440 (or an entire federal loan) I wouldn’t have to deal with. Also, if you pay back federal loans within 120 days, they take off the processing fee as well. I found this out senior year when I started paying back loans. I saved about $45 in loans this way. And I could have saved more if I had been paying them back all throughout college.
Put everything else into savings.
This student has $305 in excess (see feature image for math clarification). (S)he should be saving this much. In order NOT to spend the savings, set up an automated transfer to take that much from the account the day after payday and move it into a savings account. The more automated everything is, the better managed the money will be. Especially when your life gets busy, like mine has.
Also, one thing I do that helps me save extra each month is to only work within the pay period. If payday is the 7th, and I get $275, but there’s $295 in my account, I transfer the extra $20 to savings. This is apt to happen when you budgeted an excess in one category or another. For example, if I only spent $55 in gas, instead of $75. This is important because if the money isn’t accounted for, it’s easy to overspend. Limiting yourself to the $225 in those two weeks helps.
Consider investing.
Alternatively, if you’re interested in investing, you can move the excess money to Acorns, or another auto investor. I don’t recommend those for long-term use, more on that later, but if you’re just dipping your feet into the market, it’s not a bad tool. Other companies like Vanguard or Ellevest have (slightly more complicated) options that you can research if you want to dip deeper into investing, but at that point, it’s not “basic budgeting”.
Make it Personal.
Notice the a $205 dollar difference between what is being put into student loans, and what is being put into savings. I consider those to be the same category because they’re both working to build wealth one is increasing your net worth and the other is decreasing your debt. If you’re more interested in debt repayment and less interested in traveling or saving for a big purchase, you can always flip the numbers. That’s where budgeting gets personal. You need to ask yourself, what are your goals and how is the best way to get there.
And that, my friends, is the basics of budgeting. Any questions?
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Great post and tips for current college students!
My tip: I worked throughout college and made repaying my student loan debt a priority as it accumulated. If you are able to pay the interest as it accrues you can avoid compounding interest during deferment in school.
Ohhh, that’s a great tip! I didn’t do that, but I definitely encouraged my sister to. And I paid off all the accrued interest of my loans in the grace period after school before the subsidized loans started accruing interest. That really helped out!
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Soooo awesome that your sister is listening to you so closely! My youngest brother just started college this fall, but we aren’t quite there yet ????
I know!! I’m so proud of her, and I really want to help her with the action steps. I had all the head knowledge going into college, but I didn’t actually apply it until Jr/Sr year because I was nervous and stressed and it just felt like too much. She has a chance to be in a WAY better place than I was when I graduated. And I’m excited to be able to say, here’s where I went wrong, DON’T BE ME!!
This is good, simple advice! I wish I would have had something like this when I was in college
Right! My mom walked me through it in high school, but it didn’t stick until junior year, probably, when I spent a semester at Oxford and wasn’t making any extra income, and only had $3,500 in the bank to cover the six months I lived there plus airfare. Since then, I’ve really honed in on budgeting and making my money fit my lifestyle. But having a template reminder my freshman year would have been super handy. (Although, by nature, I’m a saver, not a spender so it wasn’t AS catastrophic as it could have been…)