For many students, going to college marks a big step toward independence. One of many “new” experiences, is the management of finances. The good news is that with the right approach, it’s possible to balance your finances while still enjoying the full college experience. Here’s how to make the most of your money without missing out.
Common Budgeting Mistakes to Avoid
Before building a budget, it helps to understand the mistakes that commonly throw students off track. The first budgeting mistake is not having a budget at all, followed by an unrealistic budget. It is important to create a realistic budget built around how you may already be spending your money.
Step 1: Understand Your Spending
The key to creating a realistic budget is tracking your actual spending. One way to track spending is to use different colored highlighters to look at the last three months of bank statements to see your expenses. For example, color housing, car, liabilities, and personal expenses differently. Want to review digitally? Review spending by category in Chelsea Groton’s Manage My Money tool in online and mobile banking. Three months of spending habits should provide a clearer picture of spending versus one month. If you’re just headed back and spending during the summer months doesn’t look like spending during the school year, look at the last three months of school before you left for summer break.
Step 2: Choose a Budgeting Method
Are you looking to save more consistently? Are you just looking for more structure overall?
One of the most popular budgeting strategies is 50/30/20, where 50% of income is allocated to needs, 30% to wants, and 20% to savings or debt repayment. This is a great approach if you are new to budgeting and want a simple guideline.
Another option is to pay yourself first, which helps if you want to simplify and prioritize saving. This is done by automatically transferring a set percentage of income into savings or investment accounts before allocating money for expenses. This may help students who do not have a ton of expenses but want to consistently save money.
Step 3: Plan for Irregular Expenses
In the same way it’s easy to lose sight of small expenses; it is common to not account for irregular expenses. These differ from emergency savings because while they are expected, they don’t occur on a regular basis. Emergencies are unexpected and urgent. Creating an emergency savings account that you consistently contribute to with the sole purpose of saving for these expenses can alleviate stress surrounding the costs when they inevitably creep up. This account may also help break larger costs into manageable amounts and reduce reliance on credit cards or high interest loans. “Looking for an easy way to save for a vacation or other upcoming expenses? Consider opening a second checking account and naming it “Savings” in your online banking app,” says Miria Morgan, Chelsea Groton Bank’s Community Education Officer. “You can set money aside specifically for that goal and then use the debit card associated with the account to pay for expenses when the time comes, without needing to transfer the money back to your everyday checking account.”
Step 4: Build Smart Money Habits
Other than creating a budget, there are still ways to intentionally save more. For example, using student discounts or moving a little money each week into separate savings accounts.
Whether you’re a student or not, it can be easy to overspend with a credit card. A helpful tip is to keep your credit limit manageable and pay off the full balance each month. This allows you to enjoy the convenience of a credit card without carrying debt.
Step 5: Adjust as Your Life Changes
College brings a variety of financial changes, so flexibility is key. When your expenses are lower or your income is higher, focus on building savings. During busier academic periods, be mindful of spending and adjust your goals as needed. Remember, a budget is a tool that should change with your circumstances, helping you stay on track no matter what stage of the semester you’re in.
Step 6: Start an Emergency Fund
It is generally recommended to have three to six months of your essential living expenses in an emergency fund, but any amount can make a difference. Common emergency expenses might be replacing a broken charger or laptop accessory, or last-minute supplies or class expenses. Start with a goal of getting $100 into an emergency savings account and then work towards larger goals.
The best budgeting strategy is the one you can stick with. When creating healthy long term financial habits, consistency is key. It is best to try to keep it simple and not overcomplicate the budget.
