Jessica Caldwell
College is a time in life when most students first begin to experience life on their own. It's the first time living away from home, paying bills, and making major or minor life decisions. It can be overwhelming. More so today than 25 years ago or even 10 years ago due to the long list of things that are changing in our world at an expeditious rate.
Current students face many challenges that their parents and grandparents did not experience. While there are still wars and conflicts today, just like back then, the experience modern students go through is different. With the recent rise in social media and advancements in technology, students now experience world events in real-time with graphic details alongside them.
Living in a technologically rich world where the answers to most things are a tap away can be a gift and a curse. The ease of it all makes for faster answers and less effort, but in doing so, it creates a reliance on technology and shortcuts. The idea that you don't need to learn to do something if there's an app or site to do it for you has risen since the introduction of tech. What would one do if these resources were suddenly not there anymore? Who would you turn to? The way to prevent confusion or blind reliance on external factors is to be able to do it yourself. Understanding finances and how to handle them is at the top of the list of life skills lacking by a large percentage of the American population today. It's never too late to learn! Although it can be overwhelming, starting small and moving on to bigger obstacles is the best way to handle things.
Once you begin to understand your money situation, it will become easier to have more confidence in yourself as an adult and feel more positive about the direction your life is heading. Here are a few tips on creating a budget for yourself as a student so that you may achieve that.
Start by making a list of what you earn and spend in a month on separate sheets of paper or in a graphic organizer. On the first list, write down all the incoming money from the previous month: paycheck, loans, gifts, etc. Basically, any money that you receive after taxes. Keep in mind not to add anything together until it’s directed to do so.
Write down everything you paid out or bought last month on another sheet.
Repeat using the two months prior to the month you just completed. This step will help you understand what you have been earning and spending on average.
Go through the list of money spent and mark beside each one (N) need, (W) want, and (L) luxury.
“Need” means it is detrimental if you don’t have it. This includes groceries, medications, gas, etc. This does not include restaurants.
“Want” means something you want but don’t necessarily need. This could be an impulsive purchase or simply an enjoyable something you see at random.
“Luxury” means spending money that is outside of your needs or wants. An example of this could be buying a nicer version of a product than your usual, going on vacation, or buying fancy clothing!
5. Add the lists individually, then compare the ones from the same month. Which is higher, the in or the out? Subtract your spending list from your income list. This is your end balance for the month.
6. Double-check your math, especially if you have a negative sign in the end balance. After getting the exact numbers, compare the months to get your average.
7. Add the three months together and divide by 3 to get your average monthly income and expenses into one amount for income and one amount for expenses. Subtract the expenses from the income, and this will be where you chart your budget.
Do not be upset if you are spending too much right now; the budget will help. If you're spending less than you earn, that is impressive. On average, though, that number is going to be negative or close to negative. The higher the difference in spending and earnings, the more strictly you will need to budget yourself.
8. Most financial advisors present the 50-30-20 rule for college students. 50% for needs, 30% for wants, and 20% for savings. At the top of another sheet, write down your average income and put three columns, labeling each one with (N) (W) (S).
9. Using a calculator, calculate 50-30-20 from above, writing the amount beside the letter it represents on your sheet. This amount is the ideal amount you should spend on each category every month.
10. You will notice that one category from your list is not on the budget. This comes in later. Once you have those numbers, pull out your budget overview. Subtract the needs and wants from last month from the number in your budget and compare.
11. If the two numbers are positive, you have been staying within budget. If either
number is negative, return to your expense list, examine what you marked as a need, and ask yourself, “Is this a necessity?” If yes, start another list with all the yes for needs. Add and subtract your new list.
12. Go through the want expenses and see which ones you prefer, ranking them from top to bottom. When you have everything from most wanted down to least wanted, put the list with the final budget.
Once you reach your monthly spending on wants, going from top to bottom, you’re on budget. Anything you buy after that will be over budget.
13. Look at the new numbers in the ‘needs’ column. If this is still negative, you will need to figure out what percent of your needs are over budget and decide what your next course of action will be.
Your monthly priority should be to keep your expenses below the allotted amount.
14. Moving on to the fourth column: Savings. Put that amount each month into a separate interest-dwelling savings account. This account should only be used for certain reasons or occasions.
Emergencies happen. If you don’t put money aside when a big emergency comes along, you won’t have the money. Having money in your savings account is solely to prepare for an emergency.
Goals. Set a goal for a major purchase like a car or down payment on a house, and also set a time limit. You then need to work towards said goal. If you budget carefully enough, you may have the means to put a wanted amount of cash aside each month in the savings account to reach that goal.
Reward. This is where that other list, luxuries, comes in. Set a personal goal for yourself within a certain time limit. If you meet your goal within that time, treat yourself to something on your luxury list or similar. Start with a goal every year or six months so you can comfortably build up the savings.
After learning how to do this without help from any tech other than a calculator, start looking into apps that will help you maintain your budget or give advice on budgeting. I recommend choosing an app you have to maintain yourself. This will increase the level of awareness you have of your finances and will also help you appreciate the efforts put into that money and organization. It seems counterintuitive to educate oneself so much only to come back to an app in the end, but the goal of this practice is not to get away from tech; it’s to obtain financial literacy as the new generation.