You are getting ready to send your child off to college. Before you start helping them pack their belongings, there is one thing you need to do.
You need to help them create a budget. You need to teach them how to manage their money so they can learn the tools they’ll use long after they graduate.
WHY DO COLLEGE STUDENTS NEED A BUDGET?
The truth is everyone needs a budget. It does not matter your age. If you are dealing with money, a budget is necessary.
- Allows you to control your money. Rather than your money telling you what it wants to do, you get to tell your money where it needs to go. You are always in control when you have a budget.
- It teaches financial skills. A budget helps ensure that expenses such as rent, tuition, food, insurance, transportation, and housing are paid – before spending money on the fun stuff. (It also helps to make sure you don’t spend more than you make.)
- Makes you aware of where your money goes. When you use a budget, you see how you spend. It is very simple to see if too much is going toward dining out when you should be building your savings.
- Helps you track your goals. You need to cover expenses but you should also work on building savings at the same time. Your budget allows you to not only see those goals but track them in real time.
DOESN’T A BUDGET MEAN YOU CAN’T HAVE FUN?
Not at all! If anything, your budget will allow you to have guilt-free fun.
For example, the budget may allow you to spend $50 a week dining out. That means you can go to dinner with friends once (possibly twice) a week and enjoy yourself. You won’t be left wondering how you are now going to make rent.
WHAT TYPE OF BUDGET SHOULD YOUR STUDENT USE?
There are various methods of budgeting such as the 50/30/20 and the zero-based budget. For most college students, the zero-based is the simplest and easiest to follow.
The reason is that you track everything. You give every penny a job. That means if you earn $1,500 for the month that you “spend” the entire $1,500.
You will first cover the needs (food, shelter, transportation) and then your wants. If there is money “leftover” after this is done, it can be added to your savings.
You can use other types but if you have never budgeted before, using this method is the simplest.
WHAT SHOULD A COLLEGE STUDENT INCLUDE IN A BUDGET?
The budget will vary for each person, as the income and expense will be different. However, these are the most common categories that need to be included in a budget:
- Renter’s insurance
- Car payment
- Car insurance (also saving for annual renewal fees)
- Utilities (phone, electricity, gas, water, etc.)
- Entertainment (movies, games, concerts)
- Dining out
- Emergency fund savings
Again, you may have items that are not included above or see some that you do not need.
However, the most important thing of all is that every penny is given a job. Account for everything you will spend each month so you never have too much month and not enough money.
HOW DO YOU KEEP TRACK OF YOUR BUDGET?
For most college students, apps or digital trackers are the best options. But, before you rush and sign up, keep the following in mind.
- Cost. Many apps are free and they will work perfectly fine. Other apps have a monthly fee attached to them. If you plan to use one of them, make sure you include that as one of your regular expenses. However, do not let the cost alone be a single factor when it comes to clicking the sign-up button.
- Security. Your security trumps all else. You need to make sure the app uses encryption as well as two-factor authorization.
Some of the best apps include:
- You Need a Budget (YNAB)
However, your student may also like the traditional paper and pencil method – and that is OK as well.
Find the right one that works best for your student. That is all that matters.
TEACHING THEM TO BUDGET
Knowing you need a budget and where to track it is just the beginning. You need to teach your child how to budget.
Start by looking at each category that they need on their budget. You may already know the cost for each category but if not, you may need to make phone calls or do research to know.
For example, you know the rent for the apartment is $850 a month but how much are the average utilities? Ask the manager for these costs so you can include them in the budget.
Next, decide how much they want to allow themselves to spend on food. Show them how much a meal costs for a single person at each restaurant you eat at so they can create an average.
You will then have them decide how much “fun money” they want to include as well. You can base this on them wanting to go to the movies two times a month, one concert a month, or attending three events.
Now you can see the expenses for your student. Add their income to the budget and deduct the expenses. They will see if they are operating in the black (money left over) or in the red (spending more than they make).
Show them how to adjust the numbers by increasing their savings or lowering the amount they can spend on clothes – until the budget equals zero. Zero meaning they are spending every penny they earn.
And making them keep track now will help ensure they stay on track well into the future.