One of the exciting yet scary things about starting college is that you begin your adulting phase! Having an accurate and realistic budget can help you pay off your necessities while ensuring you have wiggle room to treat yourself! While budgeting can sometimes be daunting, it is essential as we are now responsible for managing our own money.
Here we will break down how to set a budget that works for you into five phases:
Phase one: Find out what your monthly income is
Your monthly income can come from a regular paycheck, allowance, and side gigs. If you receive a steady paycheck, make sure you are calculating your after-tax income rather than your gross income (before taxes). If you are self-employed or have side gigs, subtract anything that reduces that income, such as business expenses and take in consideration irregular income.
Phase two: Tracking and categorizing expenses
Once you know your monthly income, it is time to figure out your expenses. You can look at your credit card and bank statements to see how you’re spending your money. While doing this, categorize your expenses to determine which are fixed (e.g., rent) and which vary (e.g., groceries, shopping)
Phase three: Setting realistic goals
Before creating a budgeting plan, you need to list short-term and long-term financial goals. Short-term goals should take one to three years to achieve, while long-term goals may take decades. We understand that a decade sounds like a long time, but Diamonds by Rihanna was released a decade ago…
Now that we got that out of the way, short-term goals can be setting up an emergency fund or saving up for a vacation after the school year, while long-term goals could be saving up for retirement. Your financial plans do not need to be official, but knowing them can help motivate you to stick to your budget!
Phase four: Choosing a budgeting plan
There are many budgeting plans, but the most beginner-friendly program is the 50/30/20 rule. The 50/30/20 rule allows you to divide expenses into three categories by percentages. You spend 50% of your after-tax income on your necessities (e.g., rent, minimum payments), no more than 30% on wants (e.g., takeout), and at least 20% on savings (e.g., emergency fund). Check out the 50/30/20 calculator by Nerdwallet to get started. Remember that wants and needs vary by individual, someone’s daily coffee may be a want while another person may see it as a need.
Phase five: Adjust and review your budget
Congrats! You have set a budget. If you go over your budget, it happens! A budget is meant to be flexible because these scenarios do happen. Adjust your budget to ensure your necessities are taken care of first to get back on track. You may need to change your budget, but it should return to normal.