When you’re living on ramen and money is scarce, the last thing on your mind is a budget. But even college students need a plan for their money, especially if they’ve taken out student loans to help cover their education, plan to get a summer job or tend to receive checks from the Bank of Mom and Dad. Wherever the money is coming from, you’ll want to use it well — you don’t want to blow through your funds before the semester is over.
Drafting a budget is a way to plan what you’ll do with your money. It means knowing how much to set aside for school supplies like notebooks and textbooks, and how much you have leftover for meals out and that backpacking trip to Europe. A budget is also a useful tool for developing good money habits, which you’ll carry the rest of your life. Now’s the time to develop those skills so you avoid relying on credit cards, overdrafting your checking account or becoming dependent on family.
The best kind of budget is one you’ll stick with, so we’ve listed some rules to help you get started. Yes, a budget may feel like a burdensome task, but once you’ve found a system you actually like, you’ll find it’s much easier to stay on track. Here are four tips for college students to make the most of their budget.
1. Identify Needs Vs. Wants
Your budget will be all but useless if you don’t know the difference between needs and wants. The reason: If you list everything as a need, you’ll end up spending more than you should and have little left over for the things you do need, like tuition. Needs are the basics you must have to get by such as housing, gas, groceries and clothes. Wants are the things you can live without such as Spring Break in Cabo, pizza delivery and Netflix. Remember, the point of a budget isn’t to keep you from spending on fun stuff but to ensure you have enough money to pay for it.
2. Set Your Goals
If you don’t know what you’re working toward, how will you know what to do with your money? To get a sense of your goals, it helps to ask the big questions: What do you want to accomplish, and how much money will you need to get there? Once you know what direction you’re heading in, you’ll be able to come up with a strategy — and make decisions — to help reach your goals. It will also be easier to turn things down if you know you’re saving up for something meaningful.
3. Track Your Spending
Ideally, you should know how much you spend in a typical month. To find out, take a look at your debit and credit card statements from the last few months. See any patterns? Be sure to write down recurring and basic fixed costs — ie., rent and utilities — as well anything that tends to pop up, such as tickets to concerts and morning lattes. Once you see how much you’ve been spending, you’ll have a better idea of how much you need to set aside for each category to avoid going overboard — and what you might want to cut back on.
4. Streamline the Process
Once you know where your money is going, it’s a good idea to automate your finances. You can download your bank and credit card apps to help you keep tabs on accounts at all times, and automate bill payments so you never pay late fees. (Newsflash: Missed payments can ding your credit, which can affect your ability to borrow money. You can learn more about credit scores here.) You can also automate your savings so you’re putting something away each month. There are a number of budgeting apps for smartphones and tablets, so tinker around with a few until you find one that works — or just stick with old fashioned pencil and paper, the choice is yours. As long as your system is doing most of the heavy lifting, you won’t need to worry about it every month.
5. Start an Emergency Fund
Adulthood may feel like eons away, but you’ll join the real world sooner or later. When that happens, you’ll need to pay for it, from car repairs and health insurance to Fluffy’s vet visit. As the saying goes, your emergency fund should only be used in emergencies, not when you need to make an “emergency” trip to the mall for retail therapy. This is money to set aside in case the worst happens, so if you haven’t already, make this a part of your budget.
If you’re not sure how to get started, automate your savings. Designate a small portion of your paycheck from a part-time job to go directly into a savings account instead of your checking.
Want to learn more about managing your finances? Take advantage of Money Smart Week going on now through April 29. There are numerous resources you can research in order to get your finances in check and organized. As you make your way through your college career, keep in mind that being smart with your money can pay off in the long run.
Author: Jeanine Skowronski
Jeanine Skowronski is the executive editor of Credit.com. Her work has been featured by The Wall Street Journal, American Banker, TheStreet, Newsweek, Business Insider, Yahoo Finance, MSN, Fox Business, Forbes, CNBC and various other online publications.