A sound budget is important to financial success. With limited income and high costs, budgeting is a necessity to make it through college. Here are some tips on how to get started:
There are three kinds of expenses.
Fixed expenses are the same month-to-month. These include items like per-credit-hour tuition, subscriptions, rent, insurance and loan repayments.
Variable expenses—surprise, surprise—vary based on an activity level, that is, how much of something is consumed. These include clothes, groceries, gas and bills for utilities or cell phone service.
Mixed expenses include elements that are both fixed and variable.
Fixed expenses are easy to track because they are anticipated. Variable expenses don’t extend the same courtesy.
A good idea is to keep receipts. Write down the amount of each purchase, or record it on a mobile device, and keep a running total.
Classify purchases as either necessities or wants. How many of the wants are impulse buys? These add up over time, and they are almost always more costly than anticipated.
Obvious, yet sometimes overlooked, wisdom is to keep track of paychecks and electronic deposits.
This should also apply to money earned on the side, in addition to interest on a bank account or other financial asset.
The same three categories of expenses also apply to revenues.
Salaried employees luck out because their paychecks vary little from week to week.
Hourly employees have variable earnings and should know how much their pay fluctuates each period.
If one anticipates working fewer hours the following week, it is wise to make sure there is enough money to cover expenses.
If revenues exceed expenses, they are losing money. While this isn’t always avoidable, it’s a good idea to make sure enough is set aside to cover emergencies, like car repairs or medical bills.
Many experts agree it is a good idea to save 15 percent or more of one’s income each month.
It’s easy to overspend with a credit card, and in some cases, even a debit card. It’s easier to swipe a piece of plastic than forego tangible money, so cash may be the way to go.
With an envelope system, the consumer decides on a monthly or weekly basis how much should be allocated to different expenses.
Leftover money can be added to a savings account or spent on an occasional treat as a reward for frugality.
Banks and credit unions have teller apps to facilitate budgeting.
Some include features that can be set up to send notifications directly to account holders and allow customers to label each transaction.
Contributions from Nathan Zoschke, Editor-in-Chief.