Budget basics you may not learn in school.
Financial literacy is being taught in more schools every year, but maybe it isn’t taught in yours. It’s also possible that you sat through some finance classes but don’t remember anything because you were busy texting about your weekend plans. If you find yourself constantly out of cash, or you’re never sure where it all goes, don’t worry. We’re here to help.
As you get ready to start another year of school, it’s the perfect time to get yourself on a budget. It’s important to understand what’s going on with your money. Otherwise, it’s nearly impossible to improve your situation and take control of your finances.
Believe it or not, budgeting doesn’t take a lot of work, and it doesn’t require an accounting degree. You can set up a budget in a short period of time, and once you’ve done that, it only takes a few minutes a day to keep it updated.
Here are some easy steps to get you started.
Commit to the joy of budgeting. This first step isn’t really an action; it’s simply a mindset. But you need to recognize the importance of managing your money and commit to keeping up with it regularly. If you’re reading this article, you may have already completed this step. Hooray!
Tally up your expenses. List out every bill you have, whether you pay it monthly, quarterly, annually, whatever. If it’s a bill you only pay quarterly, divide it by three to determine how much you’ll need in your budget each month to account for it. (If it’s annually, divide by 12; you get the drill.)
If you can’t remember all your expenses off the top of your head, check your checking account and credit card statements. (And if you don’t have a checking account, get one. Otherwise keeping track of your expenditures is considerably more challenging.) Get in the habit of reviewing these statements regularly; they’re very educational. You may find, for example, that your fondness for cappuccinos is costing you $90 a month.
Separate expenses into fixed and variable. Fixed expenses are ones that stay the same every month; the variable ones change. Your car payment is a good example of a fixed expense; the electric bill you split with your roommates may vary every month, which puts that in your “variable” column. You’ll also need to estimate monthly costs like groceries, gas, clothing, etc. These can be a little harder to estimate since you don’t get a bill for them. A good way to start is to look at bank statements for the previous month. Assign a category for each expenditure and add up each category. Feel free to make adjustments as needed. Just be careful not to underestimate what you spend on certain things.
When reviewing your variable costs, decide which ones are necessary and which ones aren’t. You likely can’t avoid buying gas or groceries, so be sure to include estimates for those. On the other hand, you don’t have to eat at restaurants, or buy movie tickets, or get a new hat. A good approach is to set aside a portion of your budget for “fun stuff,” and when you’ve used up that amount for the month on optional things, stop buying them until next month begins.
You may also want to set aside some money each month to create a slush fund for unexpected expenses, like car repairs. Start getting in the habit of making sure you’re financially prepared for the unpredictable.
Determine your income. This is as simple as looking at your take-home pay each month. However, if you’re like most students and only work part-time, your paychecks may vary quite a bit. If that’s the case, do your best to establish an estimate, then update your numbers once you get paid. And don’t forget to add in anything extra you get from your parents, assuming your parents are awesome like that.
Don’t forget things like birthdays, holidays and “road trips.” These items are easy to overlook because you may not spend money on them every month. Next thing you know, you’re giving packs of gum as gifts, or you can’t join your friends for that weekend trip. Estimate out how much you’ll need for these items in the next year, then divide that amount by 12, and that’s what you need to set aside each month. Now you have a slush fund for fun stuff.
Adjust as needed. Creating a budget might show that you’re over-spending every month. If so, dial down on your optional expenses to make things work. Sometimes budget decisions are hard ones. You’ll have to make them sooner or later, so do it now, before you find yourself overdrawn.
Track often. It’s best to track your spending every day to see how you’re doing. At minimum, try to take a little time at the end of each week to do this. If you wait too long in between updates, it gets daunting. A little bit each day is much easier.
Stay disciplined. This might be the most important step of all. Don’t exceed the limits you’ve set for yourself. If you use up your entertainment budget, stick to only the essentials until next month. Stay in and cook at home, skip that morning latte, avoid the mall. Your bank account will thank you for it.
Once you get up and running with a budget, you’ll wonder how you ever lived without one. Make adjustments to it until it works for you; there are lots of ways to set up and maintain a budget. Keep tinkering until it works for you. And enjoy the satisfying feeling of being able to pay every bill, every time.