College is a good time to establish and practice good financial habits for the future. With new independence, students should learn how to effectively budget their money to avoid overspending and debt later in life. Even if you’re just taking classes from an online school it’s still important to start budgeting to prepare for the future.
Why is Budgeting Important?
Many first-year college students find themselves overspending. In college, young adults are given the freedom to manage their own time and money. Without parents to patrol their spending, they may find that they spend more money than they should.
As a college student struggling to make ends meet, establishing a budget gives insight to personal spending habits. It helps people recognize what expenses are essential and what things are unnecessary. Learning to effectively budget money in college is an essential skill that carries on throughout life.
Types of Income and Expenses
Although college students may live away from home, some are not financially independent. Parents may still pitch in for insurance, phone bills, or credit cards. Many students rely on scholarships, financial aid, and wages from a part-time job to get them through college.
A student loan is money borrowed in order to pay for the cost of a college education. It is required to repay a loan within a certain amount of time. There are two main types of loans:
- Federal Student Loans:
- These loans are given through the Department of Education to students that qualify. They are need-based, and depend on the degree level the student is working towards.
- There are two federal student loan programs: the Direct Loan Program and the Perkins Loan Program. They usually have lower fixed interest rates, and flexible plans to pay them back.
- There are options to defer payment, however, many of these loans are unsubsidized, which means that you still have to pay interest on the loan even when you are in school.
- A subsidized loan may be available if you qualify, and the government will pay your interest while you are in school.
- Private Student Loans:
- These are loans that come from a bank, financial institution, school, or other private agency. While the terms of each loan may vary, many private student loans require payments even while the student is attending school. Unlike federal loans, they can have variable interest rates. These are unsubsidized loans. To obtain a private student loan, you may need an established credit record. These loans are not based on need; however, the interest rates are much higher on these loans than on Federal Student Loans, so be cautious.
Scholarships are payments that are merit-based awards given to students. These do not have to be repaid; they are offered by universities, and a number of outside organizations. There are scholarships for academics, for sports performance, and basically any other kind of achievement.
You don’t have to have perfect grades to qualify for academic scholarships, so apply anyway. Private colleges may have higher tuition, but they also offer more money in scholarships than state schools. Scholarships can affect the amount of financial aid you are eligible to receive, so make sure you check with your school’s policies on outside scholarships. There are many websites that offer services to help you find and apply for scholarships.
Grants are need-based funds. They are given to students that qualify as having financial need. In order to determine qualification for a grant, submit your Free Application for Federal Student Aid (FAFSA). Grants are given from a variety of different organizations, including federal and state governments, schools, and nonprofit organizations. They do not have to be repaid, but they do have requirements that you need to fulfill.
Lots of college students have part-time jobs they attend to while they study. There are usually positions on-campus, however off-campus opportunities are available as well. On-campus job positions are usually more convenient since they are close by, generally have more experience working with college students, and have accommodating schedules. However, your university may have restrictions about how many hours you can work while you are a student, so make sure to comply with their policies.
These different sources of income contribute to your total income. Your total income depends on the amount of money you receive from grants, scholarships, loans, jobs, allowances, etc. The amount of money that you get from these sources each month is called your monthly income.
In college you become more responsible for what you spend money on. Your expenses include tuition, grocery money, rent, etc. The things you need to spend money on in order to be successful in school are called necessities. The expenses that are the same each month, like rent, are called fixed expenses. Other purchases on necessities or wants that vary from month to month are called variable expenses.
These forms of income and expenses factor into your total income for a semester. Your income depends on:
- Loan money you qualify for and accept.
- Scholarship money and grants you receive and apply towards tuition.
- Number of hours you are able to work based on your class schedule and school restrictions.
Create Your Budget
Creating a budget isn’t as daunting as it seems, and will become extremely useful. A budget helps students be more aware of where the money is being spent. Remember that the things you want aren’t necessarily things you need.
How to Budget
Before you start your budget, it might be a good idea to spend some time just recording your spending habits. Be honest, and track how much money you have been spending, and on what. Keeping track of each penny you spend will be insightful when creating your actual budget.
Pick a timeframe for your budget. Whether your budget is created for a month, a semester or the entire school year, plan according to what works best for you.
Next, you should determine your expenses and your income. List out all of your income, including money from grants and scholarships, contributions from parents, part-time job, etc. If you received grants or scholarships and you get more money than you actually need to cover the cost of your tuition, books, rent and other fees, the school will send you a refund check. But don’t spend that money right away. It is best to put that money into your bank account and save if in case other expenses come up.
Make a separate list of all expenses. Include money you plan to spend on transportation, insurance, entertainment, food, etc. It is helpful to divide expenses based on categories like food, entertainment, school, etc to see where you spend the most money.
After figuring out your total income and expenses, balance your budget. Calculate the difference to determine how much you can spend on visits home, class materials, clothes, and food. This money is called your discretionary Income, or spending money! This is your total income minus the necessities.
Plan for emergencies. Things don’t always go according to plan. You will inevitably have some expenses that you didn’t plan for. Maybe you spill water on your computer, or your car breaks down. It is always best to set aside some money in your budget for these life emergencies.
When creating your budget, save some of your income. An easy way to do this is to transfer funds into a separate savings account. If you are thinking about purchasing a big-ticket item soon, you should consider budgeting money into your plan to save up for that purchase.
Revisit and adjust your budget as needed. Maybe rent changes, or you don’t spend as much on groceries as you thought. Feel free to reevaluate your budget as time goes on and circumstances change.
We have created a sample budget for you so that you can see how it works. We only budgeted monthly income and necessary expenses.
- Student gets paid $10 to work on-campus.
- She works 20 hours a week.
- She pays $350 for the rent on her apartment and $50 on utilities each month.
This example does not apply to everyone situation. There are many other variables to consider, and personal expenses will change depending on the activity. We assumed that students did not pay for phone bill, credit cards, insurance, etc. Make sure that you include all of your expenses. This is just a simple example to get you started.
|Utilities (including internet and cable)||-$50|
There are many different websites that can help you create, and stick to, your budget. Here is a list of some applications that you can use to create a personalized budget.
- Microsoft Excel: It provides several budgeting templates that are included in the latest edition of Excel. They even have one for college students. It doesn’t require internet and can be saved directly on your computer.
- Simple.com: They have a free online checking account, and budgeting tools.
- Mint: This app connects with your bank account to organize your spending habits for you. It offers suggestions on how you can save money.
- Level Money: This is an app that updates you in real-time, tracking your spending each day. It also has options to track your spending for the week or month.
- Left to Spend: It is an app that lets you know how much you have left in your budget to spend.
Make sure you check with your bank before using any of these applications. Many financial institutions have budgeting tools that are available to you too.
Ways to save money in college
College students are always looking for a way to save a few dollars. Here are some ways you can save some money in your budget:
- Purchase used textbooks instead of books that are brand new. You really don’t need brand new books, and you probably won’t keep them anyway. Save a few dollars and purchase used ones. It may even have helpful notes written inside.
- Make a meal at home instead of spending money on dinners out. While it is easier to buy food from a fast food restaurant, and it is fun to eat out with friends, it is a lot cheaper to make food yourself. You can even get your roommates to join you.
- Live with roommates instead of living alone. Even though you may not have the luxury of a private room, shared rooms are usually cheaper than living alone. And you may get a new best friend.
- Shop at thrift stores. They offer clothes at a huge discount.
- Shop where there are student discounts available. Many places like movie theaters, grocery stores, retail stores, and online shops offer discounts to students with their college ID. Don’t be afraid to ask a store if they offer a discount for students, because they might!
- Look for coupons and sales. Don’t pay full-price for anything.
- Take advantage of free stuff! There are usually free activities, entertainment, and food on campus, or near your university.
Now that you are in control of your budget, you can be more responsible for your spending habits. You will establish good financial practices that will benefit you the rest of your life. You don’t have to worry as much about whether you will be able to make ends meet, because you will have planned it out.
Here are some budgeting terms that are helpful to understand. We mentioned most of them, but it is nice to review:
- Total income: The total amount of money you earn before taxes. For college students, it includes the money you had before getting to school, refunds you received, and your paycheck.
- Monthly income: Money you receive each month from your job.
- Discretionary Income: Spending money! After you pay your rent, tuition and other bills, this money is what you can spend on fun things. This doesn’t include money that you have transferred into your savings account.
- Discretionary Income = total income – necessities
- Necessities: Things you need to spend money on like tuition, groceries, books, etc.
- Wants: These include things you want, but that aren’t necessities. You can live without them. Examples: a new purse, a new guitar, the newest video game, etc.
- Fixed Expenses: Necessities you pay that are the same amount each month.
- Variable Expenses: Necessities or wants that vary in price from month to month.
- Money to Savings: The amount of money to transfer from your checking account into your savings account.