I created a bank account for myself in the August of 2021. It was thrilling, seriously. Entering Freshman year, in a new country across the globe, and having a shiny card with my name on it that spat out money on demand (not exactly). It was a leap from wearing a school uniform and asking my mom for money every time I wanted to go out. But it was also difficult to understand the whole idea of a “budget”. Why should I track expenses when I could just open my PNC app? I barely went off campus and so I did not have cash flowing in or out as much as I assume a household would have. I did not think too much about where money was coming from.
But it turns out that you don’t need to keep checking your PNC app balance with the goal that there needs to be at least $1000 in there. That is what budgeting money is for. Instead of working backward and focusing your energy on staying over a certain basic limit of money, it is actually beneficial to work with the ideal amount of money you want to spend every month.
You might be feeling financially comfortable already, trying to balance work and studies, or simply wanting to avoid taking on any extra student loan debt. Regardless of what your situation looks like, the bottom line is that it’s important to have a budget, and here’s why.
The Money Talk
As a college student it may feel like everything has been worked out, especially at a college like Swarthmore where there’s a pre-paid meal plan and if you’re in the 95% population who have selected on-campus housing, then housing. But if you did track your spending last year, you’ll know how the expenses just add up. Take an evening, when you decide to drop into the Lacrosse match. Obviously, you start it off with a trip to Renato’s. It may be a $7 pizza slice, but if you do this before EVERY lacrosse game hosted on campus, it adds up to $98 a semester.
And while Target Runs, cooking your own food with groceries from the co-op, and breakfast at Hobbs is a quintessential part of life at Swarthmore, you will find out that you end up shelling out quite a bit as the days add up.
Creating your own college budget will keep you in the loop of where your money goes every month, which is a step towards managing your finances. Maybe you’ll save a couple of dollars through budgeting, or maybe it’ll help you dissolve student loans months ahead of plan. But, in the long run, this experience will help you stay financially unstressed. In this transition, from being completely dependent to independent, you can experiment to find the system that works best for you, knowing that you still have a safety net. It’s kind of like the pass/fail of personal finances. So take that freedom to find what works for you but also push for that A because once your budget is set up, you only need to make small adjustments to accommodate changes in your income and spending habits. The same budget you create now can keep expanding as you move into your 20s and beyond, which gives you every reason to build a solid foundation.
Creating a budget
Especially on a cash-free campus, there may not be significant daily expenses, but as weeks go by, money is going to be disappearing from somebody’s bank account. It’s already a bit into the Semester, but by now you should have a clear idea of where that money is coming from – financial aid? A savings account? Do you plan to have a campus job?
The first step is to talk to whoever has been footing your expense so far. If that’s your parents, they probably have expectations to not receive “that” call requesting them to top up your bank account. What do they have in mind for monthly spending? They are not in your shoes and so based on your personal experiences, it’s fine to tell them if you estimate you need more than they’ve planned.
How do you come up with that estimate? One way is to list out potential expenses. Some starting ideas are: School supplies, Groceries, Dining, Travel (Septa Vs Uber), Room Decor, monthly streaming subscriptions, Gifts, Entertainment, Clothes etc.
Another dimension to it can be to split the list into different priorities. For example, getting an apple watch to help track your vitals and exercise could be a high priority, and getting the apple for the “It Girl” aesthetic, maybe a low priority.
Create a spreadsheet (or refer to the apps listed below) to document your starting point. [Plus point: While depositing money into, say, a savings account is not really an expense, it could be helpful to keep a row for savings so that you remember to put money aside for future goals.]
Senator Elizabeth Warren popularized the "50/20/30 budget rule". It essentially means dividing up after-tax income and allocating it to spend: 50% on needs, 30% on wants, and 20% on savings. It makes a sound thumb rule. Translating it to college life, by adding all your money sources - family, self, scholarships - and splitting it up, if your budget is along those lines, you know you are doing good.
Tracking Your Spending
Once you have a handle on potential expenses that you could encounter, you need to track your spending. Tracking costs not only make sure you’re within your budget but also helps you fine-tune your budget to better reflect your needs.
Digital tools
The most popular option is probably digital tools. They’re easy and at the tip of your fingers at all times of the day. There are tons of free apps available that give you insights into your spending activities. Here are some apps with distinguish-ably different features so you can find what fits your needs best :
Mint work in real-time to help you monitor your financial goals. Mint is great because it helps with budgeting, by allowing you to set up different categories and place limits on spending in each. It also has a feature that connects the app to your bank account, and automatically tracks your spending.
If the security aspect freaks you out a bit, Wally is a great option as it is a budgeting app targeted at college students, and it does not link to your Bank.
Personal Capital is probably a good fit if your focus is on investing and/or saving for the future. Its tools have features like “asset allocation” to help you determine your net worth, and goal-oriented feedback systems for building your savings.
Of course, there’s always that one start-up with a quirky innovative philosophy and that is EveryDollar. It is based on a principle of zero-based budgeting, which subtracts all the expenses from income until it hits $0. It is pretty much an app version of Dave Ramsey’s Baby Steps that makes it easy to save money and reduce spending. It’s on the complicated side, but if you’re up to the challenge it can help you even build up a $1,000 emergency fund and set aside months’ worth of expenses.
Albert goes beyond simply keeping track of money and provides suggestions on cutting back; such as canceling a subscription you don’t use enough. It also connects you to financial experts who can give you advice anytime, anywhere.
Dollarbird works differently from other money-saving apps by using a calendar system instead of different categories. This makes it more manageable to deal with personal finances on a daily basis rather than monthly. My favorite feature is that it requires you to confirm recurring transactions, so after your 6-months of free Amazon Prime are up, you aren’t unknowingly left with a recurring $8 monthly charge.
2. The old-fashioned way
You could also track your expenses manually by simply entering it in a journal or on a simple spreadsheet like Google Sheets that you can share with your family.
Cons: manually tracking is somewhat tedious.
Pros: might make you more intentional about your spending as a side effect.
Last year, I thought I found a shortcut - notes. Theoretically, it made a lot of sense: it is an easy-to-open app that I can immediately access to make a rough note that I can later enter into a spreadsheet when I go back to my dorm. Plus I didn’t need to download another app onto my phone. However, every time I bought something, I would quickly jot it down in my notes (probably while awkwardly conversing with the cashier) which left me with several different notes consisting of ineligible words, irrational numbers, and confusing timelines. The lesson I got was to never pick anything that requires you to work on it twice. Be it entering finances twice… or repeating a problem set.
Sticking To The Budget.
The best way is to not be overly optimistic with your Budget to start with. Set goals that you can realistically stick to. I’m not a pro, so don’t take it from me. Take it from Valerie Clem-Brown, director of financial aid at William Peace University in Raleigh, North Carolina. The two most common budgeting errors she pointed at are underestimating expenses and not planning for variances.
“Whether it is an electric bill that will fluctuate depending on the season or gas to get to and from school, students often do not plan for costs to change over the nine to 12 months they are budgeting for.”
What she’s essentially saying is that you can’t consider the best-case scenario. For example, say you’re living off-campus and are trying to figure out the cost savings. It might be tempting to think that it only costs a couple of dollars to make a pot of pasta. Theoretically, that sounds like a solid plan but it is probably not feasible – and definitely not healthy – to set out a budget around the absolute minimum values.
And things can definitely go wrong and potentially throw a wrench into a carefully crafted budget. Stranded at Haverford at 2 am, with the only option being an Uber? Good thing you planned some extra in your budget to shell out even though it is the end of the week.
However you work out your means of paying for your day-to-day life in college, you’ll want to get a headstart asap. Maybe budgeting seems irrelevant to you or maybe you just needed a sign to get started. This is it. Budgeting in college is like one of those “real-world” math word problems. If you don’t solve for ‘x’ now, you could end up having to figure out the calculations mentally on a Monday morning, perhaps in New York and in desperate need of a way back. Regardless, with more clarity on your money habits, you could have the chance to work toward bigger dreams, and think long-term. Paying off student debt, traveling, and even moving to a new city after college is right on your track. College is a good place to start many life journeys, and tracking your money is definitely one of them.
Comments