A broke college student. Who hasn’t heard or referred to oneself as that?
It can be easy to spend your last paycheck going out to eat, or shopping, but it’s important to maintain some self-control when it comes to your finances. We all have dreaded bills to pay, so it’s important that you have enough money to cover wants and necessities while also thinking about the future.
The term “budgeting” can be difficult at first, but if you practice the skill now, you’ll be all set once you graduate. Here are five easy steps to help you begin your budgeting journey.
The first step is to calculate your net income. Understanding this is the foundation to knowing how much you can spend. Your net income can include your paycheck from your part-time or full-time job, and monthly allowances from parents, grants, scholarships or loans. If you receive a regular paycheck from an employer, the money deposited to your account is your net income; however, if your hours vary from week to week, try to figure out an average amount that you can count on each month.
The next thing you’ll want to do is make a list of all your monthly expenses, which can include groceries, rent/room and board, dining, phone, monthly streaming subscriptions, insurance, and other miscellaneous items. Writing your own spending habits down in a book is a very effective method for keeping track of how much money you are spending monthly.
After listing all your monthly expenses, you need to organize them into fixed and variable categories. A fixed expense are those bills you can’t avoid and need to pay, while a variable expense are mostly wants including gym memberships, entertainment purchases, or dining out. If your income were to decrease, you can cut out a streaming service subscription so you have money to cover your needs.
Now that you have your expenses separated into two categories, list how much you spend on each expense per month and adjust accordingly.
Xiao Li, a sophomore chemistry student, said, “I write everything down in a notebook I have specifically for my bank account. Whenever I go out and buy something at the mall or online, I always write it down.”
An alternative way to budget is to use the 50/30/20 technique, in which you spend 50 percent of your income toward your necessities such as food, housing, bills, 30 percent on your personal wants, and the remaining 20 percent on debt repayments.
Angelica Alayon, a sophomore accounting student, uses a similar strategy that has been very effective in helping balance her needs and wants. Alayon shared, “I always budget my money by splitting my paycheck in half for necessities that I need and the other half is for my personal spending needs.”
P. Jeffrey Christakos, M.B.A., C.P.A., Specialist Professor of Accounting, shared that in a budget it’s very important to identify all sources of income first and then separate them into needs versus wants. He explained, “Needs have to be covered first and then if there are funds available; wants can be prioritized and funded accordingly.
Christakos also suggested that students find alternative options to cut down their spending. “Look to find economical spending options; you may find that you can be satisfied with cheaper alternatives to your current spending patterns.”
Although budgeting one’s money can be a very difficult task and sound like a very long process, it’ll make a difference in your life and help you learn how to manage your finances. Remember, consistency and persistence is everything. The more you do it, the more it’ll feel natural.
