"That's not in my budget" and "We're living on a budget." The word budget might bring to mind restrictions and limitations, a list of shouldn'ts and can'ts. But a budget is simply a plan. Any limitations it involves are actually steps on the way to a goal.

Budgeting when you're in college might seem unnecessary. After all, when you're broke, you're broke, right? What's to plan? When you're living on student loans and ramen noodles it may seem like making a budget is a frivolous exercise. But if you're living on your own you need to budget, whether you make $1,000 or $100,000 a year. Don't sweat: a budget doesn't have to take days to create. And while it may sound restricting, it can actually be quite freeing. A good budget, combined with savvy spending, will help you survive your college years in good financial shape. This chapter will show you how by

  • showing you how to create a budget that works
  • outlining strategies for dealing with budget problems
  • sharing tips for stretching your money

Create a Budget

A budget empowers you by giving you a true picture of your financial situation as well as a blueprint for making financial decisions. It's easy to think of things to want: a car, a vacation, graduate school. What's challenging is figuring out what actions you need to take now to be able to afford those things in the future.

Here's a simple approach to creating a budget that will work for you:

1. Calculate your income. How much money is coming in? Consider all sources, from scholarships, loans, grants, parents, jobs, investments, and savings.

2. Calculate your expenses. How much money is going out? This step takes a little more time because you don't want to leave anything out and there are probably all sorts of expenses to consider.

Monthly Expenses FIXED - Monthly Expenses VARIABLESome expenses are fixed. In other words, they occur regularly and are usually in the same amount. Examples of fixed monthly expenses are things like rent, basic phone service, and car payments. Other fixed expenses occur quarterly or annually. Examples of these include tuition bills and auto insurance premiums.

Record your monthly fixed expenses. For annual or semi-annual expenses, record the cost per month (for example, if your auto insurance premium is $1,200 annually, write down $100 per month).

Other expenses are variable. This means that they vary from month to month and you have some control over how much you spend on them. For example, a person might spend $300 on food one month and $500 the next. One-time expenses are variable, as well.

Common Expense CategoriesSo what amounts should you use for your variable expense categories? To construct a workable budget, you'll want to figure out your average monthly expenses. And, in order to get an accurate picture, you'll need to work with real numbers and keep a spending journal. Review your actual expenses from a two-month period and add up every latte, album, and shopping trip. If you use cash for most of your purchases, collect receipts or write down your expenses as you go through your day. For debit card purchases, you can use your bank statement to itemize your expenses.

3. Create an income statement.
Once you know your income and expenses, you can draft an income statement:

Monthly income – expenses (fixed and variable) = net income

An income statement will help you see your monthly bottom line. If your average income minus your average expenses equals an average negative balance, you know you'll need to make some adjustments: make more money or spend less.

Keep a Spending Journal

4. Make a plan.
After you've assessed your income and expenses as they are, you can make a plan for a financially sustainable lifestyle. Write down all of your fixed numbers—the income and expenses that can't or won't change in the near future. Then, take a second look at your variable expenses: Are there places you could nip and tuck that would leave your bank account looking better at the end of each month? Are there variable expenses that you haven't included that you need to plan for (example: gifts, spring break, or a bike tune up)? 

Creating a budget is not a one-time event.People who don't budget spend erratically—splurging here, denying themselves there—and feel anxious all the time because they don't know what to expect when they open their bank statement or bills. When you budget you can make rational decisions based on
your plan. You might still be broke, but at least you'll be able to evaluate the situation wisely. You might even decide to change your fixed expenses by, say, renting a cheaper place or selling your car.

Tips for Stretching Your Money

Here are some time-tested tips for surviving on a student budget:

Use coupons. If you're going to buy something, you might as well spend a little time to get the best deal. Retailers make this easy for you by sending coupons in the mail or posting store circulars near the entrance of the store. The Web has made it even easier with coupon purveyors such as Groupon ( sending targeted advertising and deals to consumers.

Shop sales. Just about everything goes on sale eventually. When you see something you want, watch and wait for it to go on sale. You can also ask a salesperson when the item is likely to go on sale so that you'll know when to beeline it to the store. Some grocery stores have select times of the month for reduced prices. Once you know what those days are, you can plan your major grocery trips accordingly.

Comparison shop. It takes more time, but when you want or need to make a purchase it's worth checking out your options. Look for store circulars, browse the aisles, and use the Internet to find out who is offering the lowest price and best deal on the things you want.

Ask for a deal. Sometimes all you have to do is ask. Call your credit card company and ask for a lower interest rate or to have a fee waived. Ask a salesclerk if you can get the sale price now or if you can at least hold the item until the sale.

Find freebies. College is full of freebies if you know where to look. You can snack on samples at local grocery stores, find promotional gifts, and attend company-sponsored free events. Warning: This becomes a lifetime habit. We know many people who decades out of college still perk up at the mention of free samples!

Flash your student I.D. Many businesses offer discounts to students and some of them don't advertise that they do. Ask if you're not sure, and always carry your student I.D. with you just in case.

Spend to save. Sometimes you have to spend money to save money. For example, spending $30 every three months to change your car's oil is costly— but not as much as having to replace your car's engine when it runs out of oil and burns up.

Live simply. Reconsider all the things you "need" to have. Cable television, a gym membership, new might surprise yourself with how well you adapt to life without these "necessities."

Wait before you buy. Impulse shopping can blast a good budget to shreds. Resolve to wait 48 hours before making a purchase of something you want but don't need. If, after 48 hours, you still feel you can't live without it, figure out how to pay for it and make the purchase. You'll find that you end up making purchases that you truly appreciate and don't regret.

Budgeting Made Easy Exercises

  1. Keep a spending journal. For one week, write down every penny you spend and categorize each item you buy. Write a one-page reflection on what you learned about your spending habits.
  2. Review your fixed expenses. Are there ways to reduce any of them? How would you go about reducing some of your fixed expenses? What would you sacrifice? What would you gain?
  3. Review your variable expenses. Which categories cost you the most each month? How would you go about reducing some of your variable expenses? What would you sacrifice? What would you gain?
  4. Research the best deals for college students in your community and present your findings to the class. You may choose to focus on a theme—for example, Cheap Eats, or Entertainment.


for more resources and exercises.