- Get some discipline and live within a budget: your financial well-being will thank you for a lifetime
- Establish a budget:
- focus on getting/staying out of debt
- build up a “rainy day” savings fund
- Some tips for living within a budget
- Follow through and track your expenses: be accountable to your budget
- Download: a sample monthly budget spreadsheet to help you jump start the process
Do you need a Budget?
Do you remember the Disney-Pixar classic animation Toy Story, where Sheriff Woody says, “If you don’t have one, get one!”
He was actually talking about moving buddies, to safeguard Andy’s toys from being lost in the chaos of the residential relocation. The same advice holds true for a budget. So that your financial well-being does not get lost in the chaos of life, give yourself the discipline of a monthly budget. It will thank you for a lifetime.
Why Live Within A Budget?
Living within a budget is not sexy or cool. But it gives you freedom.
“Freedom?” You ask.
“Yes, freedom. Freedom to eventually do anything you want, any time you want, and being able to pay for it. And pay for it just once.”
“Paying for it just once?” You ask.
“Yes, just once. When you can’t live within your means, you’re going into debt.”
For students, it’s usually credit card or student loan debt. When you’re in debt, you pay for the amount you borrowed (the principal) and interest on that principal. And your total payments snowball in comparison to the original amount borrowed. When you make a monthly payment, the first portion of that payment goes toward the interest for borrowing the principal. Then what remains go towards lowering the amount you borrowed. Let’s go through a couple of examples:
Example #1. You spend $1000 and charge it against your credit card. Each month, you decide to only pay 4% of the amount owed, or $40/month. Let’s assume your credit card is charging you 20% APR (annual percentage rate). Using the Bankrate.com credit card calculator, we see that it would take 74 months (over 6 years) to pay off the $1000. With interest, you would be paying a total of $1,560 for a financed purchase of $1000. So you’re paying 1.5 times the original purchase price. That’s what we mean by paying for it more than once.
Example #2. Let’s say, you’re in a bind and can only pay $35 a month and that you’re credit rating is not good, so you’re paying 24% APR. It would take you 98 months (that’s over 8 years!) to pay it off, and it would cost you a total of $1975. That’s paying for the $1000 purchase twice!
So, everything costs more when you’re in debt. So going back to our assertion that living within a budget gives you freedom…
If you carry a credit card balance
and just make the minimum payment each month,
you would be paying exorbitant interest rates
on the remaining balance.
This is like putting yourself into
the modern day equivalent of indentured servitude.
Don’t do this!
Establishing A Budget
So you get the point. How do you go about establishing a budget?
- List all your sources income: Your summer job, your T.A. job during the school year, scholarship, financial aid and grants, interest/dividends income and cash gifts.
- List all your expenses: It helps to group them by categories so you know where your money is going. And you can manage the overall expenses of each category by offsetting expenditures in sub-categories.
- College expenses: tuition, books, lab fees, other student fees
- Housing expenses: apartment rent, dormitory fees.
- Utilities: such as electricity, natural gas, heating oil, water, wastewater/sewer, internet service, cell phone, and cable TV.
- Auto/transportation: car payments, auto insurance, gas, maintenance costs (oil changes, air filter changes, transmission fluid changes, spark plug changes, etc.), on-campus parking fees, and bus fare.
- Healthcare: healthcare coverage (if already covered by your parents’ employee healthcare plan, see “Opt Out of Campus Healthcare” below), doctor visit co-pays, medical out-of-pocket expenses, dental expenses, eye care exams, glasses, and contact lenses.
- Food and essentials: like groceries, dining out, coffee, drinks (happy hour, bar hopping), vending machines for snacks and soft drinks, haircuts, and other vanity items/services.
- Entertainment and other expenses: to cover movie tickets, popcorn, music concerts, subscriptions for Netflix, Hulu, Amazon Prime, other entertainment expenses, gifts for Christmas, Valentine’s Day, Father/Mother’s Day (ahem), and vacations to go home for Christmas/Winter Break, Spring Break, and summer backpacking trips to Europe or Thailand.
- Once you establish your Income and Expenses, You can figure out your monthly savings. What to do with this “extra” money?
- Pay off high interest rate credit cards first. Try to pay an extra $10 to $50 a month if you’re carrying a credit card balance. If you don’t have credit card debit, great. Avoid it all costs.
- Once you pay off your credit card, then use the “extra” money to reduce your student loan. Don’t take out a loan for anything more than you need. Human nature has a funny way of spending money that is “on hand”. Don’t tempt yourself.
- If you don’t have a student loan, awesome! Then you can start saving your rainy day emergency fund. (More on this later.) In the meantime, stash it in a Discover Bank savings account and earn some decent interest.
- Anything extra? You could even invest your money and let it work for you 24/7, while you’re busy studying for your degree and having the time of your life.
Here is a sample budget to illustrate our suggested approach. We list the months from August through July, to coincide with each college academic year.
Download: this example monthly budget for college students for you to follow and tailor as your own.
- Microsoft Excel (xls) file
- Mac Numbers file
- CSV file (Comma Separated Values file for import into Microsoft Excel, but does not have formula)
Living Within A Budget
Here are some tips on how to save money and spend smart so you can live within your budget. Let’s no magic easy button. It takes some work, maybe even some sacrifice.
Avoid Impulse Buys. Don’t give into impulsive urges to buy things that you eventually realize that you do not need. Don’t do it. Wait. In a few days, if you think you still need it, then shop around to find the best deal. Then find a way to fit the purchase into your budget plan. Buying on impulse things that are not budgeted is one of the “no-no’s” to living within a budget.
Stay Out of Credit Card Debt. Reduce your expenses, and pay off any purchases made by credit card in full in month so that you don’t carry a balance month-to-month.
Opt Out of Campus Healthcare. Employers usually allow an employee to cover their children up to age 26 if their children is a full-time student enrolled in an accredited college. If you are still a dependent of your parents and are still covered by their employer’s healthcare coverage plan, see if you can opt out of your college healthcare coverage. Some colleges tack this onto your semester billing automatically, and it is up to you to find out if it is optional and opt out. And they don’t always make it obvious or easy for you to do so, but be persistent and you could save something like $500 per semester. That’s huge!
Buy Used Textbooks. Did you know that research proves that new textbooks won’t get you a better grade?* Studying does that. Used textbooks contain the same info but costs far less. At the end of the semester, even new textbooks become used. Save yourself a bundle of money and just buy used. Shop early before the used textbooks sell out. We understand that greedy publishers encourage their professor-authors to update their textbooks every few years to discourage the used textbook market to cannibalize their sales. Depending the subject area, does the underlying teachings change that much?
*This was intended to be humorous, but it is self evident that the statement is true nonetheless.
Check Out Reference Books from the Library. Or use it there. It’s a pain to do so instead of buying your own copy, but you may find that they’re not that frequently used anyways, hence “reference” books. We did say that living within your budget takes some sacrifice.
Take Advantage of Back-to-School Tax Holidays. A few states have tax-free holidays when certain purchases are exempt from the state sale tax. For example, Florida’s state-wide tax holiday is the first weekend in August when clothing, footwear, wallets and bags with a sales price of $60 or less per item; school supplies with a sales price of $15 or less per item; and computers with a sales price of $750 or less per item are exempt from Florida’s state sales tax of 6%. Look up your state’s tax holiday.
Buy Used Furniture and Appliances. Ditto on the “used” theme on everything else you need to furnish your dorm or apartment. You don’t need new things. Sure, it’s nice to pick up a new piece of furniture from Ikea, or buy that mini-fridge from Best Buy. But it’s far cheaper to pick up a used mini-fridge, second hand sofa, and bed. Use craigslist. Be patient and take your time. You would be pleased to find out that your life actually does not end just because you don’t have that couch from day one.
Buy Open-Box Computers at Best Buy. Read our article on this and see how you can save up to 45% off original retail. To get the best deal, start shopping early, before you really need that new computer, so you give yourself time to find that perfect deal. Shopping in May-June before your fall semester, so you can find open-box deals as a result of Grads returning their computer graduation present.
Use Free Software Tools. Don’t buy the Microsoft Office software subscription for $50/year. If you have a Mac, use the included applications Pages, Numbers, and KeyNote. For a PC user, use the free Google Chrome Office Editor applications. And you can even use this Chrome app suite off-line, so no you’re not dependent on wifi.
Cut Back on the Starbucks. You don’t need gourmet coffee every day, especially not as a college student. Cut back on it. At first, cut back to every other day, then every third day, then once a week, and finally just on special occasions. It’s not that hard. Imagine, your favorite Starbucks at $3/day. That’s $90 a month, or $1095 a year! Insane.
Avoid Vending Machines. Don’t use it to soft drinks or snacks. You’re paying a premium for the convenience. Instead, stock up on your favorite snacks at Walmart or your grocery store during a sale, then pack it with you when you leave for campus each day.
Hydrate on Tap. Avoid soft drinks. Drink water instead. It’s healthier for you. You don’t need the added sugar or artificial sweeteners. Avoid bottled water though. The plastic is environmentally unfriendly. Even if you recycle the plastic bottles, it takes energy and resources to recycle them. Tap water is safe for drinking. If you don’t like the taste, try using the Brita filter system, including a portable bottle with built-in filter for use on campus (available from Amazon). Simply refill at tap water fountains wherever your go. You’d save a lot of money, and I personally thank you for saving our environment from thousands of plastic one-time use water bottles.
Cook More, Eat Out Less. Learn to cook a few dishes before heading off to college. You would be eating healthier than the frozen TV dinner processed food choices. When cooking or eating at home is not an option, avoid full-service restaurants, saving yourself the time, trouble and expense of a 15% tip. Over four years, these tips can add up. Fast casual chains like Panera Bread offer relative healthy food choices that quick and budget-friendly.
Shop Around for Auto Insurance. Do like the cute gecko suggests, it may take you longer than 15 minutes, but there are potentially huge savings if you shop around for auto insurance. Don’t let agents over sell you coverage. As a college student, you don’t have much liability, so you don’t need as much coverage.
Use an App to Find Cheaper Gas. Gas stations across town can easily vary at least $0.10 per gallon. This translates to about $50 annual savings if you drive 12,000 miles per year and get about 24 mpg average. Use smartphone apps such as Gas Guru (Android, iOS) to find a cheaper gas station. For road trips, gas prices can vary considerably more. If you plan and shop around ahead of time, you can save some money. For example, a road trip between Orlando, FL and Chapel Hill, NC, you would find that the cheapest gas is in South Carolina. So if you car has the range, plan on fill up after crossing over the SC border and again before leaving the state. While you fill up, avoid buying the high-priced snacks at the gas station convenience store.
Combine Trips. Don’t take the car out just for groceries one day, to the post office the next, and Walmart the next. Combine these trips. Not only will you save gas, wear and tear on your car, you’ll also pollute less and save time.
Conserve Resources and Energy. Turn off lights and computers when you’re not using them. Isn’t that a bright idea? 😉 Turn off the faucet when brushing your teeth. Take shorter showers so you don’t deplete the aquifers. Cooler showers are better for your skin. Your wallet and mother earth will thank you for these habit for years to come. You’ll be more environmentally green and save more greenbacks. Since being green is the “in” thing, it shouldn’t be too hard to suggest that your roommates do the same. That way, you’ll all share in the savings.
Tracking Your Expenses: Be Accountable to Your Budget
At Pragnotion, we emphasize the importance of the follow through. For budgeting, following through is tracking your actual expenses against your planned budget. Track your actual expenses against your planned budget. Save your receipts. Or if you’re like me and misplace them, snap a photo of your receipt with your smartphone. That way, you just swipe through your photos to find your receipts when you track your expenses.
See where you’re spending more than budgeted. Figure out why there is a difference.Figure out how and challenge yourself to meet your budget next month. Cut coupons. Dine out less.Cook more. Stay in more. Combine trips. Conserve more. Compensate for overages by reducing expenses elsewhere. Don’t reduce your savings. That’s cheating yourself. For categories that you did not spend as much as budgeted, reduce the budget for that item next month, and bump up your payment to paying off your credit card balance, or student loan. Don’t make excuses. Again, you would only be cheating yourself. Be tough on yourself. Remember the adage, “no pain, no gain”? It certainly applies here. After a few months, you can see trends in your actual expenses vs. budget. Challenge yourself to reduce even more and funnel the difference to paying off your credit card balance or student loan, or adding to personal savings. There nothing magical.
Just like a journey of a thousand miles
begins with a single step,
The accumulation of wealth
begins with savings of a dollar.
After a while, the frugality will get easier. It will be less painful. And your savings will increase.
Tools & Downloads
To help you jump start the budgeting process, we offer a spreadsheet template from which you can tailor and make your own budget.