What is a budget?
A budget is a tool to help manage, track, and set goals for your finances. It helps prepare you for financial expenses and savings opportunities. Essentially, a budget determines how much money you are bringing in, how much you are spending, where you are spending, and how much money is left over. This allows you to strategically adjust your spending and savings habits to get the most out of your income. Most budgets are kept on a monthly basis; however, they can be used for shorter or longer periods.
Why is budgeting important?
Budgeting is always a good habit to keep, but it can be especially important in college. Between the limited income and assorted educational expenses, it is essential to track and balance your finances. Maintaining a balanced budget can relieve financial stressors and help you prepare for yearly and semester expenses. It is also an important skill to begin building early on. Budgeting in college can set you up for greater financial success later on.
- Overestimate your expenses.
It is better to overestimate your expenses and then underspend and end up with a surplus.
- Underestimate your income.
It is better to end up with an unexpected cash surplus rather than a budget shortfall.
- Include an "Unusual" category in your budget.
There will be some expenses every month that won't fall neatly into one category or that you couldn't have planned for. This category will help you budget those occasional expenses.
- Review your spending for little items that add up to big monthly expenditures.
Daily coffee or soda, eating out for lunch, and other expenses like this can add up to big expenses. Consider ways you can reduce these "little" spending habits.
- Differentiate between needs and wants. Minimize spending on wants.
Prioritize your wants so you can work on saving up for them over time rather than spending a lot on all your wants at once.
- Comparison shop.
Compare products to get the best prices and value.
- Prepare for the unexpected by setting saving goals to build your emergency fund.
Budgeting will help you cover unusual expenses and plan for changes that may happen while you are in school.
- Use credit cards wisely.
Credit cards are a great tool for building credit, but you need to be careful about expenses. Limit the number of cards you get (you really only need one at this point). Don't spend more on your credit card than you can afford to pay in full on a monthly basis. Make small purchases that you know you can pay off to build credit and avoid large purchases that will put you in credit card debt.
- Create a routine.
Manage your money on a regular basis. Record your expenses weekly to keep track of the information and your budgeting goals.