Being a student comes with lots of financial responsibilities – most of which one may not have faced before. Some of the expenses a student will expect to incur include rent, food, buying books, spending money on socializing, gas, and travel among others.
On the other hand, an ordinary student doesn’t expect much income and most of the income they will be expecting will be mainly financial aid from parents, guardians and relatives, financial aid from the school, income from a part-time job and scholarships and student loans (which are not always guaranteed). A student, therefore, needs to be extra careful on how they spend their money and establish as well as stick to a budget.
Building a monthly budget is a very important skill that a student will need for the rest of their life. As aforementioned, students do not usually have much income to keep track of but often have financial assistance which is basically the same thing. A student will need to understand where their money ends up if at all they have any hope of controlling it. Only if they understand what they are spending their money on will they be able to take more valuable, carefully planned decisions about their ultimate financial goals.
Many people generally feel that budgeting is a tedious, rather pointless task. However, most people who have managed to carry out successful budgeting report that with time, they have found new ways to slice spending and discovered hidden cash flow problems that eventually free up more cash to add to other financial goals.
Maintaining a positive mindset and remaining motivated are the most important ingredients for a successful budget. The driving force in creating and sticking to a budget should be the rewards. Will one finally be able to buy that new music system or smartphone or absolutely cool laptop computer?
On the other hand, a student must set realistic expectations. Unrealistic expectations kill a budget and extinguish the initial aim of having a budget. Setting too high goals will only discourage you when you fail to reach them. The thing is, setting challenging but realistic goals.
How to go about it
In coming up with a student budget, one will need to identify three things: all the expected expenses, all the expected incomes and timings of these expenses and incomes. Timings of cash flows are much more important in budgeting than the cash flows themselves. It is the key determinant of whether one will suffer a ‘no cash’ period.
Creating a good budget
Firstly, list all the monthly income. If some income is paid as a lump sum at the beginning of the semester, divide it equally according to the number of months. Next, work out all essential negative cash flows in order of preference. Say, food and rent come before socializing spending. Next, subtract the outgoings from the incomes. The balance is what is left for other not so important activities. While most students consider it nonsense to save this balance, it is very important to do so just in case the actual expenditure exceeds the actual income.
Discipline in budgeting is key. Successful budgeting creates strong spending and saving habits and helps students learn the true value of their money. In essence, budgeting is the most important thing a student ends up learning throughout their school life.