Most students are broke! Even if you’re not, it’s good to learn how to effectively budget your money. It gives you better control of how you spend and where exactly your money is going. If you’re not keeping track of where exactly your money is going, then you might be spending blindly. That is spending money on something without any clue of how much money you’re actually spending. If this sounds weird, don’t worry, in this post, we’re going to cover how to budget your money as a student, and how you can start today!
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What Is A Budget?
According to the Oxford English dictionary, a budget is “an estimate of income and expenditure for a set period of time”.
A budget is basically how much money you make and spend within a particular period of time like a month. Some people prefer to track their budget digitally with an app or physically with a budget template, which is included in this post.
Why Is Budgeting Important?
You might think budgeting is about depriving yourself, but that isn’t true at all. The main purpose of budgeting is to take control of your money.
As students, it’s easy to just pay for whatever you need to pay for. Sometimes you might not really know how much money you’ve spent on a project until you actually calculate it and find out that it’s a lot.
More reasons why budgeting is important:
- Saving: Most obvious reason. Saving for a vacation, a product you’ve been wanting to buy or on an online course.
- Helps you stay out of debt: Budgeting reduces the risk of overspending and helps you stay out of debt
- Helps you gain control of your money: Most of us don’t really have control of our money and i’ve been a victim of this. When you have so many online subscriptions and don’t know exactly where your money is going every month, it shows you’re not in control of your money.
- Keeps you focused on your financial goals: We all have something we want to buy. Budgeting keeps you on track to getting that dream gaming station, or makeup or whatever interests you.
How To Budget Your Money As A Student
If you don’t know how to start budgeting your money, a simple rule you can apply is the 50-30-20 budget rule.
Senator Elizabeth popularized the “50-30-20” rule in her book “All Your Worth: The Ultimate Lifetime Money Plan”. The 50-30-20 budget rule is a general rule for budgeting that you can use if you don’t know where to start.
How To Budget Your Money As A Student With The 50-30-20 Budget Rule
After your taxes are paid, according to the 50-30-20 budget rule, 50% of your income should be spent on your needs, 30% on your wants and 20% should be saved.
But how do you know the difference between your wants and needs?
Your needs are obligatory payments that sustain your life. Think of groceries and recurring bills like rent, telephone bills.
Your wants are other life pleasures that you can live without. Your flex money can fit perfectly into this category. You shouldn’t spend 30% of your income on your wants, instead, it should be the maximum amount you should spend.
You can have different reasons to save. The most common things people save for are vacations, weddings, emergencies or paying off debt.
How To Budget Your Money As A Student In 5 Simple Steps
Now that the common terms are explained, you’ll now know the category to place the bills you’re paying.
1. Calculate And Split Your Income
After your taxes have been paid, calculate your income. Most of the time, if you’re getting a paycheck, your taxes have already been removed for you.
But if you are an entrepreneur, you’ll have to calculate your taxes and pay them yourself. After you have calculated your monthly income, split it according to the 50-30-20 budget rule.
For example, if you have $1000 as your after-tax income, you’ll have $500 for your needs, $300 for your wants and $200 as savings.
Split your money and see how much you have for each category.
2. Examine Your Spending Habits
Now that you know how much you have for each category, examine your spending habits and see how much you actually spend in each category.
You can easily do this by examining how you spent your money in the previous month. Write down everything you spent your money on and categorize them under needs & wants.
3. Reorganize And Tweak
Take one more look at your list and confirm if they belong in a particular category. You should know that the percentages are just general and you should tweak them according to your spending habits.
If 50% of your income is too much for your wants, then you can reduce it to 40%. You might be in a place in your life where saving is a priority, if that’s the case, you might consider increasing the percentage of your savings to 25% or 30%.
You should also make sure each category adds up to the amount you place on them. It is not realistic to reduce your needs to 30% if they cost more than 30% of your income.
4. Identify Opportunities To Save
Are there some things you can cut off? As students, there are some things that might not be worth spending your money on.
If you also have subscriptions like a Netflix subscription, you can easily split the bill with a roommate or friend and then share it with the person.
You can also do the same with books, especially ebooks. A group of people can donate to buy an ebook and then just share the book with the group.
Key Takeaway: Make sure you identify opportunities to save a little money
5. Test Drive
Stick with your budget plan for 2-4 weeks, more ideally, for a month or two and see how you cope.
If you cannot keep up with your rule, then it’s back to step 3: reorganize and tweak.
You can tweak as many times as you want until you get your sweet spot.
If you’re looking for an easy way to budget and save, you can use the Koho banking app, which is the one I use, to easily save your money. There are other apps that can help with saving; Nerdwallet and Piggyvest are some of the best budgeting apps.
If you like budgeting physically using a template, I’ve prepared an easy budgeting template that you can use.
Final Thoughts On Budgeting For Students
There are so many reasons why people budget. For students, you might be saving up for something really expensive.
Keeping track of where your money is going and actually setting the right budget plan can help you reach your financial goals.
The 50-30-20 budget rule is a general rule and you should tweak the percentages according to your circumstances and financial goals.
You can either budget with an app or use a budget template. Let me know the method you’ll be using and the reason why in the comments below!
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