One crucial task not to be overlooked when you start college is to create a sensible budget. Now that you are operating independently and out on your own, taking control of your finances is paramount. Creating and sticking to a budget can ensure you have enough money left for each month’s expenses. It can also help with future goals like graduating debt-free.
In this article, we will go over how to prepare for college budgeting with some step by step methods to follow. This way, you will have a realistic idea of what you can afford and avoid any stress that comes along with having a financial crisis.
1. Figure out Where Your Funds Are Coming From
The first thing you need to do is figure out your funding situation. If you are receiving financial aid, you need to know how it will be disbursed. Typically, the college will get the finds which will go toward your tuition and room and board. If you will be receiving funds from private loans, there may be a different funding schedule than federal financial aid, so make sure you know when and how the money will be doled out.
Now is also the time to have a discussion with your parents or relatives about any money they plan to use to help you pay for school. Find out exactly who is planning on paying for certain college expenses and how. Discuss any 529 plans your parents have invested in, and whether they will be covering any of your costs out of pocket. Figure out if you will need to get a job to cover some of your own financial responsibilities.
You will also want to find out if your parents plan to claim you on their tax return as a dependent, or whether you will be responsible for filing your own taxes this year. Your tax status will determine who will be filling out the FAFSA form in the future.
This is also the time to bring up a credit card or bank account. Depending upon your age, you may need a co-signer. While it’s nearly impossible to get by without a debit or credit card, you will also want to bring up any guidelines or ground rules about how you plan to use the card. You don’t want to find yourself in more debt than you can handle.
While discussions about money can be awkward, it is crucial that you talk about the situation together so that everyone is in the loop and knows what the expectations are. This way, you know exactly how and when your expenses will be met.
2. List All Your Expenses
You will want to jot down a list of all your anticipated expenses. There are lots of little things that can add up quickly, so it’s vital that you are as thorough as possible during this step. It can help to make two lists. The first list is for all the expenses that will be paid through student loans or financial aid. The second list is for expenses that will be paid from your personal savings, a part-time job, or from your parents or some other source. With this two-list system, it can be easier to track your expenses, so you know exactly what to expect.
When listing your expenses, there are a few essential categories you won’t want to overlook:
Textbooks and Supplies
Books can eat up a significant chunk of your budget. According to the college board, the average cost of books and supplies in 2019 was around $1240 a year for students attending both public and private four-year institutions You will also want to plan for expenses like paper, pens, binders, a laptop, backpack, and printer.
Room and Board
Will you be living in student housing and using a meal plan, or are you renting a private apartment and shopping for groceries yourself? Either way, you will want to make sure you have factored in any reoccurring monthly expenses. If you plan to live in an apartment, you may also need to plan to pay for utilities like electricity, heat, and cable or WIFI.
If you are attending a school where the climate is different, have you planned for expenses like winter boots and snow parkas? Likewise, if you are going to the sunny south, you will want to budget for warm-weather clothes. Keep in mind you will need at least one professional outfit for job fairs and other more formal functions.
How do you plan to get around campus or town? Will you need to travel to and from your job? Will you use public transportation or ride a bike? If you must have a vehicle, you will want to budget in monthly expenses like insurance, fuel, and an emergency maintenance fund.
Entertainment and Discretionary Funds
You should plan at least a small amount of money for entertainment like going to the movies or occasional social activities. You may need a haircut or find yourself having to take an UBER unexpectedly. Will you want to pay for a plane ticket to travel home for the holidays? Is there someone you want to purchase a gift for? All these unexpected expenses will come up, so it’s best to be prepared for them by setting some cash aside in a savings account so you can be ready for any surprises.
3. Keep Track of Your Spending
The whole idea of a budget is to live below your means and be able to cover your expenses. You will want to keep track of money coming in and going out regularly. You don’t have to fill out complex accounting worksheets every day; any basic budgeting app will do as long as it affords you a way to track your spending.
You might choose to use your bank’s online portal to keep track of what is happening with your budget. You can also do it the old fashioned way with a pen and a notebook or take advantage of online tools like Mint or QuickBooks. As long as it is manageable for you, that’s what counts.
Once you see where your money is going, you can attempt to find ways to reduce expenses or save more. You may notice patterns that are getting in the way of savings, like a $4 a day Starbucks habit or one too many evenings out with friends. Once you identify where your cash is trickling away, you can take steps to do something productive about it. If you still find you don’t have enough at the end of the month, you may need to increase your hours at work or reduce some of your discretionary spending even further.
Establishing a solid budget will keep you afloat during college and help you save for the future. Instead of wondering how you are going to afford certain expenses, you will be able to anticipate them ahead of time and determine the best way to cover them without stress.
A healthy grasp of your money situation can also help you set goals like saving for life after graduation or paying off student loans.
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