As a recent graduate ready to step into adulthood, you’ll find college is the best time to start working on your financial knowledge. To start, you need a budget! Whether you make a few bucks at your student job or if you have no bills to pay, having a budget can teach you how to manage your money and prepare yourself for later in life. Not sure where to begin? Here are the first steps you must take when starting a budget in college.
Step 1: Collect the Evidence
Here’s your first challenge: for one month, keep every receipt, every pay stub, every bill, and collect it in one place. If it uses money, you keep it. At the end of the month, you will use this data to help you set the groundwork of your budget. Just be sure not to change your spending habits. You want this month to be as accurate as possible.
Step 2: Lay Out the Income
Add up last month’s spending numbers, and write down how much you brought in (after taxes) in a spreadsheet or piece of blank paper. This number is your “Income” – highlight it in yellow or another cheery color!
Step 3: Record Your Bills
Next, go through your last month and look for necessary bills. These may include a credit card statement, car insurance and gas, or rent and utilities if you live off campus. Write down the name of the bill, when it was due last month, and how much it costs. Then, total it all up at the bottom of the line and label it as Must Pay!
Step 4: Track Your Additional Spending
Just like you did with your bills, make another column and write down the name of what you bought (or a nickname like “Dinner Out with Jane”) and how much each item came out to be. Add everything together and label it as Additional Spending.
Step 5: Do the Math
Take the amount from your Additional Spending and Must Pay and subtract it from your Income. This is the amount you have leftover.
Step 6: Savings Plan
Let’s say you have money left over after you’ve completed Step 5. We suggest using that money by dividing and conquering. Split the amount in three: one part goes towards your savings for a trip or a non-essential purchase, one part goes towards paying more than the minimum towards your bills (or towards your student loans if you’re paying early), and the other could go in a retirement account.
Step 7: Getting Out of Debt
What if it’s the other way around, and your bills add up to more than what you make? Now that you know what the damage is, you can do one of two things — spend less or make more. Sometimes cutting back on eating out can do wonders while other times you may have to get a second job, such as grabbing babysitting hours to make the bills. Whatever you do, just don’t stop paying bills or rely on credit cards to get you out of debt. You’ll only end up worse than when you started.
Step 8: Replicate
Every month, sit down and repeat these steps with the new numbers from the previous month. If it’s too much work, consider using pre-made budget spreadsheets or tech like Mint.com that tracks your spending for you. With practice, budgeting and spending your money wisely will come easy to you!
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