College is a time of newfound independence. A time to make your own decisions, stay up as late as you want and figure out what to do with the rest of your life — or at least what your plans are for tonight. And, while the awesomeness of that cannot be underestimated, it’s also a time to start adulting. Step 1: Make a budget.
I’ll admit, I jumped at this assignment not because I’m an expert on budgeting, but because I wouldn’t know how to start a budget if it fell in my lap. I work hard and try to put money into my savings, but I couldn’t tell you confidently how much I was spending. I know I’m good at spending, though – my running joke is that I can’t go on a stroll without spending at least $12.
So, I’m here to find out the best budgeting tips for college students – and I’m learning right along with you.
Here we go!
1. Split your budget in half.
College comes at you fast, and social pressures and sudden independence can make it very easy to get tempted into spending more than you need to on things you don’t need. So, right off the bat, Cathy Curtis, founder and chief executive officer of Curtis Financial Planning, suggests you create two columns for your budget: one for necessary expenses and one for discretionary items. Necessary expenses are things like rent, utilities, phone/internet, groceries, and miscellaneous school costs. For those expenses that aren’t a fixed amount, like utilities, estimate the average cost.
Amanda Mier’s first budget starts with two columns: Necessities (like rent and groceries) and discretionary items (like clothes and drinks.)
Amanda Mier
Then after determining the necessary costs, subtract those from your total income and what is left can be spent on discretionary items. That’s stuff like going out to eat, buying new clothes, taking an Uber, etc. Basically, anything you don’t really NEED. This is where some needs versus wants and trade-off work comes in, Curtis says. It’s important to decide what you want to spend this money on — is it concerts or other entertainment, eating out, drinks with friends, clothing and accessories, or something else? It’s easy to overspend on items like this if you aren’t careful. Most of us can’t afford to do all of those things, so it’s time to pick and choose what’s really important to you – and then that’s where you spend your money.
2. Figure out exactly how much you spend.
Budgeting is not generally a fun, sexy activity. It’s tedious and, especially for new budgeters, can seem overwhelming and anxiety inducing. The solution? Start early, says Winnie Sun, a longtime financial advisor and managing partner of Sun Group Wealth Partners in southern California. The sooner you are familiar with the process, the more comfortable it is, and the more accurately you can assess your own money habits — and what you need to change.
“I actually recommend finding budget worksheets online and downloading a free budget worksheet, and then just filling it out for the next three months,” Sun said. “From there, you’ll figure out how much you spend.”
You know why it’s important for you to start early? Because falling behind is really easy. And once you do that, it can snowball. And, by the same token, if you build good money habits when you’re young, those can snowball and set you up in a nice financial position through your 20s and beyond.
3. Plan for unexpected expenses.
As college tuition prices rise, the costs of tuition, room and board, and meal plans factor into a budget significantly. But a lot of students and families don’t consider the overall cost of attendance, and the learning curve is especially difficult for first-generation college students.
“I’m not just talking about tuition, room, and board. Other things come up,” said Marguerita Cheng, CEO and co-founder of Blue Ocean Global Wealth. So, you have to be ready for that. You have to have a cushion for unexpected expenses.
The cost of textbooks, for example, can stack up to large expenses. And accidents happen — a broken laptop could potentially break the bank, as well. Considering other costs and keeping some cash in the case of emergencies can make a major difference for college students.
So, add a third column to your budget spreadsheet — savings. Don’t wait for your laptop to break and panic, “Why me?!” The truth is, it can happen to any of us — and it will. We will all encounter unexpected expenses — and it will probably be sooner than you expect. (They don’t usually wait 20 years.) What will make the difference when that happens is whether you are prepared — or not. Make sure you are one of the people who are prepared.
4. Stop using cash.
Not everyone is cut out for the spreadsheet-based method of tracking your expenses. So, if that’s proving difficult or just not your style, Sun recommends this budgeting hack: Stop using cash.
“If you’re going to work on your budget for three months, stop using cash for three months, put everything on your debit card [or a no-fee credit card], and that’s a way to record all your spending, because that’s essentially a budget worksheet,” Sun explains.
Once you do that, then each month when you pay your credit or debit card bill in full, you know how much you’re spending and what to adjust going forward. That way you know the exact areas you need to trim, like skipping eating out every other week.
“You find creative ways to lower your expenses, until you’re able to bring in more income,” Sun says.
5. Stop comparing yourself to other people.
Each of us comes from a different background, and each has different priorities and financial needs. You are unique. So, don’t try to compare yourself to anyone else. Honestly, would it help to know you are richer or poorer than another student? Or that you spend more or less? No. That wouldn’t change your budget and your ability to spend. So, stay focused on you.
With all of these tips in mind, I sat down to put my money where my mouth is… or at least figure out where my money is going. I was finally brave enough to open the Bank of America app, get my information and use a free budget worksheet from NerdWallet to figure out what my current budget is. I separated my expenses into necessary and discretionary, as suggested, and found that I spend around $1,350 per month on necessities and over $500 per month on discretionary items on average with a monthly income of around $2,000.
Some good news: I currently save an average of $266 more per month than I spend. Whoo hoo!
NerdWallet also let me compare how my current spending matches up with the 50/30/20 rule, which is the basic premise that you should be able to divide up your income into 50% on needs, 30% on wants, and 20% on savings. And, by that rule, I should actually be saving more like $415 per month.
Clearly I have some work to do!
Next step: Start cutting back on discretionary expenses and see what happens to my bank account. Wish me luck! It’s time to get creative.
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CNBC’s “College Voices” is a series written by college students from universities across the country about coming of age, getting their college education and launching their careers during these extraordinary times. It is edited by Cindy Perman.