College students and recent college grads usually don't have very deep pockets. Often faced with huge debt loads, busy schedules, and less-than-glamorous jobs, budgets can easily get pushed to the side.
This is unfortunate because budgeting can drastically improve your financial situation. Forget the bad stigma tied to budgeting — it doesn't have to be hard at all. In fact, creating a budget can be done in three simple steps.
Let's take a look.
Why You Need a Realistic Budget
Budgets have gotten a bad rep. Many college students and recent grads think budgets are time-consuming, boring, and useless. And, they definitely can be. There is one key component to a great budget. That key component is being realistic about your spending.
It's time for you to be brutally honest with yourself.
For example, if you spend $50 per week on alcohol, put that in your budget. If you buy yourself a new outfit every other week, put that in your budget. If you eat out five times a week, put it in your budget. I think you get the point.
When you are a beginning budgeter the most important step is to be totally honest with yourself. By being honest with yourself about money you'll be able to see (a) where you money is going, (b) where it needs to be going, and (c) how you can make small changes to redirect your money flow. Now that we know why you need a budget let's take a look at how you can keep your budget simple and realistic.
Three Steps to a Minimalistic College Budget
When it comes to budgets the simpler the better. You don't need a fancy spreadsheet, you don't need an expensive computer program or an app for your phone. All you need is a good ole piece of paper and pen to get started.
1. Track Your Spending for the Past Month
Figuring out where your money has went over the past month will be the most time-consuming step you'll have to take. Luckily you'll only have to do this once so suck it up and get it over with.
Gather up credit card statements, receipts, and bank statements from the past month. Now, make budget categories and match your spending accordingly.
If you don't want to do it manually, there are a lot of free online money management tools that can help you.
Here are a few possible budget categories for you:
- Living expenses (rent, utilities, etc.)
- Debt payments (credit card, car loan, student loans, etc.)
Got it? Good. Now let's find out where your money needs to be going.
2. Make Financial Goals
For me, there is nothing more fun or rewarding than creating goals and knocking them out of the ballpark. Hopefully you feel this way too!
Consider your financial situation as a whole. How much debt do you have? How much do you have in savings? Are you investing anything?
Logic would tell you that paying off your debt should be a number one priority. I agree with this but I also understand that some people simply are not willing to work toward paying off their debt right off the bat.
If you have no interest in paying off debt you're not going to be motivated to put your all into the goal. That's why I suggest you pick the one financial goal that means the most to you while still working on the others.
Think about your financial goals. What goal would dramatically improve your financial situation that you are most likely to stick with?
3. Redirect Your Money
I hope you picked a goal that is going to motivate you to go full force because now is the time to redirect your money. Take a look at your spending patterns. You have an idea of where your money is going, so how much is left at the end of the month?
If you have no money left then you are going to have to cut your expenses back somewhere. When cutting your expenses back, be realistic. If you know you are going to spend that $50 on alcohol every week, don't say you'll cut back. You will only be setting yourself up for failure.
Instead, cut back in places that are less painful. Maybe that's food for you. Maybe you are spending too much money on entertainment. Don't cut back on debt repayment but all other categories are game. Keep track of your spending habits so that you can see your progress.
Rinse & Repeat
Once you find a budget that works for you, stick to it. Don't be afraid to occasionally challenge yourself to find more ways to cut back and better ways to increase your income.
By creating and sticking to a budget you'll be a step ahead of your peers and on the road to accomplishing your financial goals.
What other tips do you have to create a realistic college budget?