Financial Aid

Budgeting

What does it mean to you when you hear the word “budget”? It means different things to everyone. For many students, budgeting can feel stressful or restricting. But when you create a budget, you can actually control it instead of it controlling you.

What is a Budget? And Why Do You Need One? 

A budget is a way for you to keep track of your income and expenses, and a way to exercise control over your finances..A budget helps you plan your spending based on your income and financial goals. Everyone’s financial situation is different, so a budget isn’t a one size fits all approach. It is also something you need to be willing to constantly change as your situation changes. Lastly, a successful budget strategy requires the will to stick with it—even if you have setbacks. Setbacks are likely to happen when you are budgeting but it is important not to feel discouraged or give up. You will need to make some adjustments and keep moving forward.

Before you Start a Budget

Before you start your budget you will need to work out how much you are currently spending by taking a  look at your finances of the last few months. So gather your bank and credit card statements and write out your income and all your expenses for each month. You will need to be honest with yourself and spare no detail (that 99 cents from Apple music? write it down). That way you know exactly where you are starting from.

How to Create a Budget

There are many different ways to create a budget. You can use an app, a website, an Excel spreadsheet, or even pencil & paper. But the most important thing is that you find something that works for you. 

Below are some tips to consider when you are starting your budget:

  1. Only budget money that you currently have, not what you may have.. 
  2. Overestimate your expenses and underestimate your income.
  3. Differentiate between your wants and needs.
  4. Things to consider including:
    1. A category for unexpected expenses.
    2. Seasonal expenses.
      1. Examples could include: 
    3. Determine your fixed and your variable expenses.
      1. Fixed expenses are items that don't change, like a monthly subscription or car insurance.
      2. Variable expenses have changing amounts, such as eating out and groceries.
  5. Check your budget regularly. This could be a daily or weekly task.(Tip: set a reminder on your phone or designate a certain night a week to review your budget. Consistency is key here!)
  6. If you need it, use a spreadsheet or app to help keep you on track. 

Budgeting Strategies

There are many different strategies to consider when you are creating a budget. Listed below are some common strategies to consider:

The Envelope System:

This method requires you to figure out what income, spending, and savings categories you will need for your budget, and then set the amounts you want to spend within that category each month. 

For this method you will need to:

  1. Determine your categories and the amount you want to spend.
  2. Label your envelope.
  3. Separate the funds.
  4. Spend from that category.

Pro’s and Con’s

Pro’s

Con’s

The 50/30/20 Rule:

This method recommends that you spend up to 50% of your post tax income on necessities. This includes things like housing, food, insurance, etc. Next, spend up to 30% of your income on wants, which could include things like eating out, cable, etc. The last 20% of your income is put towards savings, paying debt, and building an emergency fund. 

This strategy is helpful for those that are just starting out with budgeting, however it may not be realistic if you have high debt. 

Pro’s and Con’s

Pro’s

Con’s

Zero-Based Budgeting

This method of budgeting is simply your income minus your expenses, which should equal zero. This type of budgeting will usually work best if you can reasonably calculate your monthly income, such as with jobs that are salaried or you have a consistent number of hours that you work.

For this you will want to list out all your expenses. If you overspend on one category you will need to pull that money from a different category.

Pro’s and Con’s

Pro’s

Con’s

“Pay Yourself” Budget

The idea behind this type of budgeting is to pay yourself first, which means to set funds aside for whatever you may be saving for. This could be retirement, saving towards a car, future car repairs, annual vacation, etc. To start you will want to figure out how much you make a month, and then decide how much you want to save in each of your categories. For example, if you earn $3,000 a month, and you want to set aside $1,000 towards savings, that would mean you would have $2,000 left to spend on other items like paying bills, eating out, etc. 

Pro’s and Con’s

Pro’s

Con’s

There are many different budget strategies out there, please take some time and do your research before you start to budget and see which one would be best for you and your situation.

Emergency Funds

Life can be unpredictable, which is especially true when it comes to handling your finances.Your car might break down unexpectedly, you could have to take an unexpected trip, or you may have to take time away from work. That’s why it is important to consider creating an emergency fund.

Recommendations:

Goal Setting

Consider what you are working towards—whether that is saving to buy a car, going on a vacation, paying off loans, or purchasing a house--goals are important. You want to set attainable goals for your present, but also your future. Below is some information to keep in mind when setting goals:

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