When you head off to college, life changes in many important ways. And one of the biggest life changes is that you take on much more financial responsibility than you likely had in the past.
While your parents probably took care of essential expenses and even provided you with some spending money in high school, college is a time when you become responsible for paying your own bills and managing your own financial affairs.
Handling your money smartly is essential to be sure you don't run out of cash too soon and you minimize the debt you take on while you're attending school. And one of the keys to effective money management is to make a budget that you can and will live on.
Not sure how to start the budgeting process? Here are six budgeting tips every new college student should follow.
You need to make sure your spending doesn't exceed your income -- which means you need to know where your income will come from and how much of it you'll have.
For many students, income comes from student loans. You may also have money coming from your parents or from a job you work while in school. Consider all the possible sources of funds available so you'll know exactly how much you have to spend when you make your budget.
Most people budget their money on a monthly basis because that's how their income and lots of their financial obligations -- such as rent -- are paid. College students, however, often get a large lump sum from their student loan refund at the beginning of the semester.
If you get a big amount of money at once, you don't want to spend it too fast and run out before the semester is over. So figure out how many months the money needs to last and how much you can spend each month so you have it for as long as you need it.
If you got $6,000 at the beginning of the semester and it needs to last five months, for example, you'd have $1,200 a month to budget for.
After you've figured out the amount of money you have available each month, you should first allocate cash for the things that you absolutely need. That way you can make sure you'll have enough money to cover the necessities.
If you've never lived on your own, there may be a lot of essential expenses that you haven't had to plan for before. You'll need to consider housing costs, utilities, food expenses, cleaning supplies, health insurance costs, and transportation expenses. Textbooks and school fees that aren't included in your tuition also need to be factored in.
Once you've budgeted for these vital expenses, then you can decide what to do with the rest of your cash.
College is a time to enjoy life, so you want to leave yourself a little wiggle room in your budget to do the things you enjoy. You just need to make sure your entertainment spending is reasonable and that it doesn't take up cash you need for the essentials.
As you make your entertainment budget, be sure to consider all the fun things you'll want to do throughout the semester. You don't want to spend too much of your fun money up front and have no cash left over to spend on your sorority or fraternity formal during the holiday season or on a spring break trip.
In fact you may decide to prioritize some of these bigger expenses -- such as going on spring break -- and live on a tighter budget elsewhere to be able to afford a few splurges.
Making a budget does you little good if you don't stick to it. It's important to keep track of what you're actually spending to make sure you comply with spending limits you set for yourself. You can use apps to track your spending. Or you can manually record transactions, use your credit or debit card statements to categorize your spending, or put cash for each category of spending into an envelope and only spend until the money is gone.
It may take some trial and error to figure out which method of tracking spending works best for you. But the key is to make sure that you aren't going over budget and likely to end up with a shortfall at the end of the semester.
When you have student loans, you can typically defer payments on your debt while you are in school. The only problem is, interest will continue to accrue on all but your subsidized Direct Loans. This interest is eventually added to the principal balance and you will have to pay interest on the interest.
Your student loan balance can grow a lot during the time when you are in school because of interest accruing on your loans. If you don't want to end up graduating owing far more than you expected, see if you can allocate some spare cash to pay the interest on your loans. If you can work this into your budget, you'll be far better off later on.
By making a budget and tracking your spending to ensure you're living on it, you can spend your student loan money -- or money from your job or your parents -- in a responsible way. You can hopefully graduate with the minimum amount of debt possible and can enjoy your college years without a whole lot of financial worries.
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