For many students, college is not only the first experience of life away from the parents, it's also the springboard into the heavy world of managing your own money. If you're setting up a budget for your first time out on your own, run it through a little stress test before you leave to make sure it's sound.
TUTORIAL: Budgeting Basics
What Is Your Budget?
The basic rule of budgeting is that your income must exceed your expenses; otherwise, you'll be digging a big financial hole underneath yourself, and that's hardly the way you want to start out in life.
Test It: What is your expected income while in college? Add up all the sources of income you have, including employment income, scholarships, grants, student loans and financial help from parents. Keep this figure in mind while you work through the main categories of your budget. (For related reading, see The Beauty Of Budgeting.)
The Big Budget Categories
The biggest expense for a college student is the price of college itself; if you have student loans, a scholarship or if your parents are paying for your schooling, then that expense is covered by those means. If, on the other hand, you're paying your own way, you'll need to be sure your other sources of income will cover the cost of tuition and fees.
The other big categories of college living include:
- Housing: Is this included in your college tuition or are you living off-campus?
- Food: You may be on a meal plan, but you'll still need money for snacks and eating off-campus.
- Transportation: Car maintenance, gas, bike maintenance and repairs, and/or cost of public transportation.
- Books and Supplies: You'll need to purchase textbooks as well as school supplies, which may include a more expensive items like a laptop.
- Phone: Include your monthly phone plan in your budget; you may also need to help pay for a land line in an apartment or off-campus house.
- Insurance: Are you paying for car, health and/or life insurance?
- Utilities: Are your utilities included in your rent, or are they a separate expense? Call the electric company to get an estimated average on the cost of utilities for your place if you're unsure what to budget.
- Credit Card Payments: Include any credit card payments you need to make.
Test It: Add up all the big categories of your college life and hope that this number is less than your income. Some of these amounts can't be adjusted: tuition, housing and insurance are set. Food, transportation, and phone are more flexible. (For related reading, see Get Your Budget Into Fighting Shape.)
The Smaller Expenses
You'll also have other categories of spending while in college; while these may be smaller or somewhat irregular, you should still include them in your budget to avoid surprises. They include
Test It: Though you may not know the actual expense of these categories, make an educated guess. Add up these numbers. Add the two totals of your expenses - bigger categories and smaller expenses - to get the total on your estimated expenses. Does the number come in under your income? If so, you're on the right track.
The hairy part of budgeting is when you get into dealing with expenses that you can't necessarily estimate. What if your car breaks down, or you break your neighbor's apartment window, or you're invited to go on an exclusive but costly educational trip? Bad things and good things will happen unexpectedly, and they'll usually cost money.
You can't know ahead of time what these will be, but you can make some plans for unexpected expenses. One way is to have a designated emergency fund; if you can build this up to $1000 and keep it safely in the bank, you'll have a fall-back for crisis costs. If you don't have the cash at the beginning of the semester to set aside for an emergency fund, put an emergency savings category into your budget. Save what you can every month - $100 is good, $200 is better - and don't use it for anything but genuine emergencies. (For more on emergency funds, see Build Yourself An Emergency Fund.)
TUTORIAL: Budgeting Basics: Setting Up A Budget
The Bottom Line
Budgeting is a trial-and-error process; once you've spent a few weeks at college, you should go back and review your budget. You'll probably find that you've over-estimated on some expenses and under-estimated on others. Adjust your numbers, run your budget through the test again, and see where you stand. If you make a realistic budget and stick to it, you'll be able to handle your new, solo financial life like a pro.