Back to school season is upon us once again. When you were a little kid, going back to school meant spending all day with your friends and learning cool new things. You were excited about flaunting your new backpack or fancy markers. As a teenager, back to school meant deciding what you like and who you like. You may even be anxious about how you would be perceived by your peers.
As you grow older, going back to school is slightly different. You’re still excited to meet your peers of course and learn about things that interest you. However, student life as an adult brings with it a whole new set of anxieties, namely managing your finances.
With a whole chunk of your time spent attending classes or completing assignments, your opportunity to earn is reduced. At the same time, you still have to bear a ton of expenses. So, how do you do it? The answer is easier said than done but is guaranteed to be effective — by budgeting.
What is budgeting?
A budget is simply a plan of how you are going to spend your money, save your money, repay your debt, and if possible, invest. Budgeting works best when you customize it to perfectly suit your needs and make sure you stick to the limits you have put in place.
How do you make a budget?
Before we get into the specifics of how to budget as a student, let’s establish how you should make a budget. Whether you’re a student, a homemaker, a professional, or even an organization, the process of making a budget follows the same basic steps. You can decide to make a budget for any length of time. It could be a weekly budget, a monthly budget, or even a yearly budget.
Here is a step-by-step budgeting framework you can follow:
Step 1:
Take all your expenses into account — this means listing every expense including rent, utilities, lifestyle expenses such as take-out, gym memberships, entertainment subscriptions, etc. It would also include any debt payments you need to make. Next, total the amounts from all the sources to get a figure.
Step 2:
Take all your income into account — this means listing any source of income including wages or a salary, profit from any business, and returns on any investments along with how many dollars you can expect to get from each source during a month or year. Like you did with your expenses, add all the amounts to arrive at a figure.
Step 3:
Once you have the income and expense figures, you need to compare the two numbers. If your expenses are more than your income, then that is a red flag you are living beyond your means and are most likely accumulating debt. An ideal scenario would be that your income exceeds your expenses. This allows you to save, invest, and even indulge from time to time.
Keep in mind, if you’ve taken out a student loan to attend university or college, you probably will have more debt than income. In this case, consider your monthly loan payments (if any) versus the lump sum of your debt to get a better indication of where you stand. Your student loan is actually a source of income for you (as you’ll learn a bit further in this article).
Step 4:
After you have compared your income and expenses, you need to chalk out a plan that suits your situation. If you’re spending too much, then your budget should reflect which expenses you should cut back on or have specified limits on certain types of expenses. For example, if you realize you’re spending too much on take-out, then only allow yourself take-out once a week, or resolve to cook at home and stop ordering in.
If your income is more than your expenses, you can start setting aside money for certain goals such as a new electronic device, investments, a travel fund, an emergency fund, or most importantly, making extra payments towards your student loans.
The 50-30-20 rule is an easy way to organize your budget. Save 50% for necessary expenses. Set aside 30% for things you want or enjoy, but don’t need. Put the remaining 20% straight into savings.
Let’s now get into exactly how you should budget as a student. Just like we outlined above, the first thing you need to do is take stock of all your income
Step 1: Take stock of your income sources
When you’re a student, your income may be limited. However, there are ways that allow you to cut down your expenses, making even a meagre student income stretch wider.
Before you make your budget, first consider your main source of income. Will you be working? Will you be using your personal savings? Once you have the answer to this you can easily estimate your income and set your budget limits. Now, as you are a student, there are certain other sources of income apart from savings or wages that you may need to consider. These may include:
- Student Loans:
If you have a student loan, that’s a source of income as it will help you to pay some of your expenses.
- Scholarships:
Scholarships, whether partial or full, automatically reduce your expenses so you should take any scholarships you have a received into account as well. What's more, scholarships will give you funds for a variety of expenses, not just pure academia.
- Grants:
Just as scholarships reduce your expenses, grants also help to decrease your overall expenses, so be sure to take them into account.
- Student credit cards:
As a student you will be eligible for some great offers on credit cards. Take full advantage of this by getting yourself a credit card that you can use for emergency expenses. You can account for it in your budget, but make sure you also consider that credit card payments and fees are also included as part of your expenses.
- Student line of credit:
Student life can be hard. You may find that your regular expenses are not being covered by your income or you need emergency funds from time to time for urgent expenses. A line of credit allows you to borrow funds whenever you need it (up to a limit) and keep paying it back as you can. Of course, you can get a line of credit even as a non-student, but as a student, you can get a special type of line of credit called a "student line of credit" that will provide you certain advantages such as lower interest rates or higher limits.
Step 2: List your expenses
Your list of expenses can be extensive when you’re a student. Let's look at them in detail.
- Tuition fees:
Your tuition fee is usually a large chunk of your student expenses. It can vary based on the university or course you have applied to. If you are a part-time student, your tuition fee will be less than if you are a full-time student.
- Student fees:
These may include any miscellaneous expenses you incur such as joining a student organization. Your health insurance may also be included in these costs.
- Books and course materials:
Depending on the course you are taking; textbooks and other course materials can be expensive. Make sure to do your research to get an estimate of the costs to include in your budget. Look for second-hand books to purchase when possible.
- Living and lifestyle expenses:
If your educational institution has student accommodation, then rent may not be a major expense. However, you still need to consider your food expenses, utility expenses, and lifestyle expenses such as entertainment.
- Transportation:
Your transportation costs will vary greatly depending on if you live on-campus or off-campus.
Step 3: Consider & correct
Now that you have your income and expenses figured out, you have a good idea of how much money you will need and how many costs you can cut. Make sure to do your research about cost-cutting measures such as using student residence and opting for student meal plans.
Step 4: Make your budget
Now you’re ready to make your budget! Strategize how much you will spend each week or month and for what purpose. Stick to your budgetary limits as much as possible. It may seem tempting to make a very strict budget, but those can be difficult to stick to. Make one that actually works for you.
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