Creating a budget is the first step to developing a workable spending plan. It will help you manage your expenses and keep you on the right path to achieve your financial goals.
Before you can create a budget, you need to know what you spend in an average month. Expenses fall into two basic categories: fixed – these are the same amount every month. Rent, room and board if you live on campus, and car payments are fixed expenses; flexible – these amounts change from month to month. Utility bills, food (including that latte you grab on the way to class), and entertainment are flexible expenses. For those flexible expenses, it might be helpful to track what you spend each day for a month. Start a log in your smart phone, download a free app, or go old school and carry a small notebook.
Once you know what your expenses are, create a spreadsheet or use a budget worksheet, entering your resources and expenses. If your resources are more than your expenses, great! If not, you’ll need to take a hard look at your resources and expenses. Be realistic - it doesn’t make sense to create a financial plan that’s so restrictive you can’t live with it.
U.S. Department of Education's Federal Student Aid website > Budgeting
Credit, Credit Reports and Credit Scores
If you plan to buy a house or a car, you will need to get a loan. In order to get a loan, you will need to have a good credit. Some student loans even require you to have good credit. So how do you build good credit? If you have a credit card or loan, information about your spending and repayment patterns is already being sent to credit to the three main credit reporting bureaus (Equifax, Experian, and TransUnion). Each time you apply for new credit, at least one of those agencies sends a report with details of your credit history. They also calculate a credit score. A higher score is an indication of an individual who manages credit wisely. Here are a few tips to get, and keep, a high credit (FICO) score:
- Stay within your credit limits. Ideally you should stay within 30% since lenders look at how much credit is available to you, and how much you are actually using.
- A good rule of thumb to keep in mind: if you can't pay for it now, ask yourself if it's something you really need, or is it just something that you want. If it's a want and not a need, then the purchase may needlessly put you deeper in debt.
- Avoid having too many credit cards. When your credit score is computed, if you have too much credit available to you, it can be seen as a risk.
- If you choose to close a credit card, make sure your credit report indicates that you, the customer, requested it to be closed.
- Check your credit report once a year. Everyone is entitled to one free copy of their credit report from each of the three agencies each year. In addition, if you were denied credit recently, you have the right to a free copy of your credit report even if you already received a free copy that year. Review your credit report and make sure there are no errors. If you do find any errors, you need to contact all three credit bureaus and have them corrected.
Saving and Investing
We’ve all heard the saying “save for a rainy day”. Whether it’s a short term goal like the newest phone or tablet, or a long term goal like a comfortable retirement, we need to set money aside to meet those goals. But if you’re like most people, you don’t save enough, or you don’t save at all. You might think that as a student living on a tight budget, you don’t have any extra money to put into a savings account. Here are some ideas to get you on the path to saving:
- Be consistent. Even if you have to start with a small amount, regular deposits to your savings account will establish good savings habits.
- Before paying for any flexible expenses like eating out or going to a movie, pay yourself by making a savings account deposit.
- Set a savings goal. Whether it’s short term or long term, big or small, set a goal. You’re more likely to save if you have a goal and see the progress you’re making as you reach it.
- It's never too early to start thinking about your retirement funds. This Turbo Blog can get you on the right track starting at age 30.