One of the most important things to do in regard to your finances is create a budget. As a recent college graduate, it is surprising to me how many college students either A) don’t have a budget or B) have no idea how to create one.
Budgets are vital regardless of your financial status, age, or occupation. It is important for everyone to know how to create and stick to a budget.
Here are the five easy steps you need to follow in order to create your budget.
Step 1: Identify How Much Money You Make Each Month
Look at all your sources of income. This includes whatever money you make from your part-time job, internships, scholarships, financial aid, loans, and family contributions. Add it up and determine how much this equates to both monthly and weekly. Make a spreadsheet that shows you your sources of income. If you don’t want to create a spreadsheet, use web based personal finance software to help you keep track of your income.
Step 2: Identify Your Expenses
Look at everything you spend money on. This includes tuition, rent, utilities, food, books, school supplies, transportation, insurance, entertainment, fun, gifts, car payments, etc. Make another spreadsheet with each expense listed at the top and calculate how much you spend each month and week on these individual expenses. Again, if you don’t want to use a spreadsheet, use web based personal finance software.
Step 3: Determine if Your Income Equals Your Expenses
Using your spreadsheets (or the software you chose to use), look at how much you are spending versus how much you make. Does your income equal or exceed your expenses? If your answer is yes, fantastic! If your answer is no, you have one of two choices:
Choice 1: Add Another Source of Income
Pick up an extra job. Take out another loan. Apply for more scholarships. Find an internship or job that pays better than the one you currently have. Ask your family for more financial help. Whatever you do, just find a way to bring in more income each month (and make sure it’s legal).
Choice 2: Find Ways to Cut Expenses
Go back through the “Frugal Student” parts two through nine and look at the money-saving tips I laid out in each of those articles. Using those ideas, figure out ways to cut down on your monthly and weekly expenses. Whether it is using public transportation to cut down on your gas expense, only buying food on sale to cut down on your food expenses, or getting a roommate to cut down on your rent, find ways to save money so that you are not spending more than you are making.
Step 4: Write Out Your Monthly and Weekly Budget and STICK TO IT!
Identify how much you can spend on all your individual expenses each week and month. If you have $400 to spend on groceries each month, you can spend $100 each week on groceries. When you head to the market each week, go to the ATM first and pull out $100 in cash. Leave your credit cards at home and only use the cash you have. This way you will be sure to stick to your weekly grocery budget and not splurge.
Step 5: Use Choice 2 Under Step 3 and Start Trying to Save Money
Now that you have a budget, figure out ways to cut back on your expenses. Breaking even each month/week is fantastic, but having a little extra money to put away in a savings account at the end of each month/week is even better. Chances are you have goals you would like to achieve after college (such as buying a house, taking a graduation trip, or paying back loans), and starting to save money now will help you accomplish those goals sooner rather than later.
Creating and sticking to a budget is key to financial success. Figuring out a way to add a savings plan to your budget in order to keep extra money in the bank for your future financial goals is vital as well. By using these five simple steps, you can easily create a budget, stick to it, and save money.