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The first step towards realizing your financial goals is creating a budget you can live with.
Module Transcript
A budget is a spending and savings plan based on your expenses and income. It keeps you on track by making sure you understand exactly where your money goes each day. For most people, one goal of making a budget is to avoid debt by minimizing expenses. But for students, some debt may be unavoidable and that's completely ok, especially if it's government subsidized student loan debt. Your job is to find a debt level that's right for you and that will make it possible to reach your financial and career goals.
Everybody knows that college can be expensive, but have you ever thought about what expenses are really worth going into debt for?
Tuition and books are definitely worth the investment - every dollar spent on these items will be returned many times over after graduation in the form of higher wages and increased job opportunities. But pizza? Or MP3s? Just think - if you were to buy one pizza per week that costs $15 and download one album per week that costs $10, these purchases would cost you $5,200 over four years - hardly a small amount of money. In fact, that's over 25% of the total college debt carried by today's average college graduate!
The lesson here is not that you should never buy pizza or music for your iPod, but that unplanned, spontaneous purchases can add up in ways you may never expect. Making a budget helps you spend your money on what really matters to you. If an extra $5,000 or more of debt for impulse buys is worth it to you - that's ok if it's your decision. Rather than letting your spending habits control you, you control your spending habits.
Our interactive budget calculator can help make sure you don't leave out expenses, but the first thing you'll need to do is figure out approximately how much money you'll have over the next year. If you don't know for sure, that's OK - you can estimate your income from student loans, scholarships, a part-time job, savings, and help you may receive from other sources. Once you have a figure, divide it by twelve to get your monthly income.
Next it's time to figure out expenses. You'll notice that our budget calculator covers obvious expenses like tuition, food, lodging, phone bills, books and supplies, laundry, and transportation. Be sure to also include other expenses such as clothes, haircuts, entertainment, snacks, and whatever else you buy.
By subtracting your expenses from your income, you see your cash flow. Cash flow is simply the overall balance of your expenses and income. If you come up with a negative number, that means you are losing money and may want to consider reducing your expenses or earning additional income. If earning more is not possible, your expenses should be minimized so that they are as close as possible to your income. The closer the two amounts are, the less debt you will have!
If you agree that tracking your spending would be helpful, you'll probably want to divide your monthly budget into a daily or weekly budget to help you keep track of your spending. The budget figures for the calculator you just used have been saved and are available to you through your My Money page - simply click the "calculators" link in your "my tools" box. You can change your budget, compare it with what you actually spend, and divide it into weekly budgets, and even print it out.
Some people may also find it helpful to write down their daily expenses in a notebook and track them using a program like Microsoft Money or Quicken.
One word of caution - while you will eventually want your income to exceed the amount of money you spend, that's not always possible for students. In fact, trying too hard to lower college debt can actually be against your best interests, especially if you are a full-time student working more than 20 hours per week. Having some financial stress is normal for college students, but if finances interfere with your school work, or if you have to put necessary expenses on credit cards, you may want to consider speaking with someone in your school's aid office. Other financial options may be available to help you succeed both financially and academically.
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