As new freshmen flock to dorms and quads of colleges around the country this month, it’s safe to say budgeting will be the last thing on their mind. For their parents, though, it’s probably a different story. If you’re a college student, you may not have an idea for a spending strategy outside your meal plan, but you’ll soon find out why it’s a good idea to think of one. If you’re a parent whose new scholar slept through personal finance class, use these basic tips to get them (or yourself) back on track.
The first step in creating an effective budget is making it realistic. Some of life’s biggest expenses are unavoidable, while others are optional. This may seem obvious, but it’s hard to prioritize spending without some planning. If possible, parents should sit down with their soon-to-be freshmen to outline which expenses are most important. The Department of Education offers a simple guide on how to create a basic budget, with an example chart outlining “needs” and “wants.” A “need” is something that’s essential for current or future wellbeing. This includes money for food, rent, tuition and other necessities. Your “needs” are often your largest expenses. “Wants” are not as urgent, and include savings for vacations, new clothes or video games. As the DOE guide suggests, prioritize “wants” by thinking in terms of how long it will make you happy. If it’s worth a month of income, will it bring a month of happiness? An important note: Savings counts as an essential “need,” a stipulation that’s easy to overlook.
Don’t forget about the little things
As the DOE’s budget guide suggests, you should overestimate spending and underestimate income when creating a college spending plan. This is done to make room for unexpected emergencies as well as the many expenses that come with higher education. You must consider textbooks, school supplies, dorm furnishings, parking, laundry – the list goes on.1 Your student may want to have fun once in a while too, so don’t forget about extra spending money, or the possibility of joining Greek life, which will require extra spending and saving. Neglect the minor details and the budget may unravel after only one week.
Stay on track
After doing a little homework, you will have yourself a reasonable plan for spending and saving. Now you have to put it to the test by tracking cash flow2 somehow. Many still do this the old-fashioned way: using pen and paper. For a more visually stimulating interface, there are a variety of mobile apps designed for this spend-tracking purpose. Mint is one of the most popular free options, and comes with several features including bill reminders and free credit checks. For Microsoft Excel users, there are many free budget templates available directly from Microsoft, along with countless others. No matter how you go about it, the most important part of budgeting is getting it done.
Getting in the habit of creating and sticking to a budget is a valuable skill that will never become less useful (until you strike it rich, of course). By visualizing your money habits, students can get one step closer to breaking free from the Bank of Mom and Dad.
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1Wong, Kristin. (2015, Aug 13). Retrieved from: https://lifehacker.com/the-sneaky-hidden-costs-of-college-life-and-how-to-sa-1723503587
2Sagan, Aleksandra. (2015, Aug 31). Retrieved from: https://www.cbc.ca/news/business/back-to-school-2015-budget-tips-for-post-secondary-students-1.3203495