Although debt has become the norm for many people, especially college students, it is important to know that it doesn’t have to be that way for you.
Budget. This is a word that many do not want to hear, but the reality is the younger you are when you learn how to not only budget but live off that budget, the better off you will be in the long run.
As Holly Johnson points out in an article for The Simple Dollar:
“With a budget or spending plan in place, you have the potential to stay on track with your goals, pay down your loans faster, and set yourself up for the best financial scenario possible upon graduation. Without a budget, on the other hand, you’re much more likely to overspend, rack up more debt as you earn your degree, and get off to a rocky start once you graduate and transition into the real world.”
So how do you get started? Here are two things you can do.
First, you can track your spending. That’s right. Keep track of what you are spending and then check to see if you are making the best decisions with the dollars you earn.
Second, create and write down some financial goals. You might not think this has anything to do with budgeting, but it does. Create a list of short-term, medium-term, and long-term goals. A short-term goal is something you want to works towards that might take anywhere from a week up to 12 months to achieve. A medium-term goal is a goal that will be achieved over the next one to two years, and a long-term goal is a goal that will be reached three or more years after you have established it.
Confused? Here are some examples: Short-term goal #1 is to track all spending for a three-week period; Medium-term goal #1 is to establish an emergency of at least $1,000; Long-term goal is to graduate college with less than $500 in credit card debt.
There are six easy steps one can use to create a student budget:
- Identify Your Income Sources And Amounts. This is important because you need a clear idea of how much you are working with in order to create a realistic budget.
- Calculate Your Expenditures, Both Fixed (monthly expenses, like rent, car note, insurance, etc.) And Flexible (periodic expenses, like textbooks, travel, food, etc.). You need to aware of how much money is needed to fill your needs and how much would be needed to fill your wishes.
- Look At Income And Expenses Side-By-Side. Are you spending more than you earn? Do you have extra money each month to save?
- Cut Back On Spending And/Or Earn More Money. If you find that you are spending more than you are earning, you have one of two choices; you either trim your spending or find another job to supplement. Either way, you want to make a change in your spending so that you are not creating a debt hole from which you cannot escape.
- Don’t Spend Every. Single. Dime. You read that correctly. If you find that you have an extra $10 or $20 each pay period, save it. There is nothing wrong with carrying cash over from pay period to pay period. This habit will help you reach the medium-term goal of an emergency fund. The easiest way, in my opinion, is to set up an automatic transfer to a savings account. It goes with the whole “out of sight, out of mind” mentality; if you never put those extra dollars in your account in the first place, you will train yourself to live off less while saving more.
- Live Below Your Means. This may seem absurd, but it really makes the most financial sense. If you get in the habit of always spending every last cent you earn, you will forever find yourself trying to play “catch-up” without ever getting ahead. Think about it. Do you really need the expensive coffee when your coffee pot at home can make the same thing for pennies on the dollar?
To see an example of a student budget and to read more tips on how to budget, read Holly Johnson’s full article titled “Student Budgeting Calculator” by clicking here.