Establishing and sticking to a budget is an important life skill to learn, even for college students who are focused on keeping up their grades and getting a good job when they graduate. Budgeting may help them understand how much money they need to cover necessary monthly expenses.
Living within your means at a young age may lead to good credit scores and allow you to save money for your future, including your retirement, even though it may seem far away. It may also allow you to build more wealth over time. You may make a budget using several tools, including a budget app or a spreadsheet. However, your chosen method only works if you are disciplined and stick to your budget.
Here are some steps to creating your college budget.
Calculate Your Income
The first step is calculating your net income, which is the amount you receive after taxes. Your net income may include full- or part-time pay, money you receive from family or friends, and financial aid, such as grants and student loans.
If you work a set number of hours weekly, your monthly net income is easy to calculate. If your hours vary, determine your average income and use that as your budgeting base. If you are not sure, use a lower number to avoid overspending.1 If you make more than you spend, you may be able to save more or treat yourself to something special.
List Your Expenses
The next step is to list your monthly expenses, including housing, food, tuition, books, entertainment, and transportation. To get yourself in the habit of saving, create a savings expense on your monthly list. Then determine whether your other expenses are fixed (stay the same each month) or variable. Also, choose a priority for each cost. For example, food and rent would be critically important, while entertainment would be discretionary and a lower priority.
Once you list and categorize your expenses, determine the average monthly cost for each payment. Reviewing your bank and credit card statements may help you determine the correct figures to use.
Make Changes As Necessary
Total your average monthly expenses and compare them with your net income. If you make less than you spend, you may need to make some adjustments. Consider whether you might work more hours and still maintain your grades, but also pay attention to what expenses you may cut. For example, you might use coupons to save money on food or transportation, and you might consider borrowing books or buying used books instead of purchasing new ones.
Review Your Budget Often
Once you develop your budget, you want to review it from time to time to ensure it still works for you. Update it regularly when your expenses change and every time you get a raise or scholarship.2
It is never too early to speak to a financial professional about your short-term and long-term financial goals after college. A financial professional can help you pursue paying off your student loans, set up your first 401k, plan for your future, and work towards building your wealth.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
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1. The Go-To Money Guide for Cash-Strapped College Students, CNBC, https://www.cnbc.com/select/guide/money-management-for-students-back-to-school-budgeting/#why-its-important-to-build-good-money-habits-in-college
2. Creating a Budget, Bank of America, https://bettermoneyhabits.bankofamerica.com/en/saving-budgeting/creating-a-budget