6.6 Financial Management and Budgeting – Fundamentals for Success in College (2024)

• Create SMART goals:SMARTstands forspecific, measurable, attainable, realistic, andtimely. These kindsof goals are more manageableand canhelp you reach your finaltarget more easily. For example, instead of setting abroad, vague goal of “paying for college,” you might set a goal of paying off your two college loans five years after you graduate. This more specific, measurable goal canhelp you keep track of your progress and whether you need to make changes to reach it.
• Monitor your spending: Try keeping track of what you spend money on during a one-month period.This canhelp you see where your money goes and where you may be able to save.
• Create a budget: Based on what you discovered after monitoring your spending, create a monthly budget you can stick to. While some expenses, such as food and transportation, are necessary, you may find that you can save money on both by riding a bike (instead of driving) to school and eating out in restaurants less. We will discuss this further in the next section.
• Consider working: Some students have full-time jobs while attendingcollege, whereas others may not have a lot of time to work if they’re taking a full academic load. Depending on your circ*mstances, it’s worth looking into employment opportunities both on and off campus. Even if you feel like only a couple hours of work per week are possible, itcould help you pay for something like books so you have one less thing to worry about whenyou graduate.
• Choose loans wisely: Many college students need some sort of financial support through loans. While loans are a good way to pay for tuition up front if you don’t have the money, remember that they accrue interest until you pay them off. That means that you will end up paying back more—in some cases, thousands of dollars more—than you initially borrowed. Make sure you investigate and apply for as many scholarships and grants as you can (since they won’t need to be repaid), and shop around for the loans with the lowest interest rates and best repayment plans. Check with the financial aid office on our campus—they can provide additional help.

These are only some steps you can take for creating college financial goals, but it’s important to find the right ones for you.

The College Budget

“A budget is telling your money where to go instead of wondering where it went”.
—Dave Ramsey, financial author

The termbudget is unpleasant to some people because it just looks like work. But who will care more about your money than you? We all want to know if we have enough money to pay our bills, travel, get an education, buy a car, etc.

Budgeting involves analyzing your income and expenses so you can see where your money is going and making adjustments when needed to avoid debt. At first budgeting can seem complex or time consuming, but once you’ve gone through the basics, you’ll find it easy and a very valuable tool for controlling your personal finances. Why create and manage a budget? Going to college changes your financial situation. There are many new expenses, and you likely don’t know yet how your spending needs and habits will work out over the long term. Without a budget, it’s just human nature to spend more than you have coming in, as evidenced by the fact that most North Americans today are in debt. Debt is a major reason many students drop out of college. So it’s worth it to go to the trouble to create and manage a budget.

Managing a Budget

A budget is a plan for how you want to spend money. It details how much money comes in each month and how much you’ve allocated for spending on each thing. The virtue of a budget is that it puts you in control of financial decisions—so you can avoid surprises at the ATM or at the end of the month. Let’s look at some strategies for creating a budget:

• Be realistic: People are often intimidated by budgets because they’re afraid the plans will be too strict or force them to cut backtoo much. Thougha budget mayreveal that you indeed spend a lot of moneyon clothes, that’s okay—it may just also need to show that you spend very little on restaurants and eating out to make up for it. Again, it’s about making choices and being realistic.
• Choose a time line: Creating a budget for a fixed period of time will help you monitor whether you’re meeting your financial goals. The time line you choose is up to you and your goals. For example, youmight create a monthly budget to monitor how you spend your paycheck every month.
• Add financialpadding: Even if you feel like yourlist of financial obligationsis already long, try to set aside a certain amount each month for a “rainy day” fund—to pay for unforeseenexpenses and emergencies, like car repair, lost textbooks, etc.
• Make adjustments as needed: While sticking to your budget is important, there’s nothing wrong with revisiting and adjusting your original targets. For example, if you find that you are actually spending $50 more per month on groceries than you intended(even after shopping for sale items), you may decide to save that money elsewhere in your budget next month—on entertainment, for example.

Managing a budget involves three steps:

1. Listing all your sources of income on a monthly basis.
2. Calculating all your expenditures on a monthly basis.
3. Making adjustments in your budget (and lifestyle if needed) to ensure the money isn’t going out faster than it’s coming in.

Now comes the moment of truth: compare your total monthly incoming with your total monthly outgoing.

How balanced is your budget at this point? Remember that you estimated some of your expenditures. You can’t know for sure until you actually track your expenses for at least a month and have real numbers to work with. What if your spending total is higher than your income total? The first step is to make your budget work on paper. Go back through your expenditure list and see where you can cut. Remember, college students shouldn’t try to live like working professionals. Maybe you are used to a nice haircut every month or two—but maybe you can go to a cheaper place or cut it yourself. There are dozens of ways to spend less, as suggested earlier.

The essential first step is to make your budget balance on paper. Then your job is to live within the budget. It’s normal to have to make adjustments at first. Just be sure to keep the overall budget balanced as you make adjustments. For example, if you find you must spend more for textbooks, you may decide you can spend less on eating out—and subtract the amount from that category that you add to the textbook category. Get in the habit of thinking this way instead of reaching for a credit card when you don’t have enough in your budget for something you want or need. Don’t be surprised if it takes several months to make the budget process work. Be flexible, but stay committed to the process and don’t give up because it feels like to too much work to keep track of your money. Without a budget, you may have difficulty reaching your larger goal: taking control of your life while in college.

Source: https://youtu.be/5MV4469D0gc