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Budgeting for College Expenses: Make the Grade at School and in Life
Heading to College? Here's Your Budgeting Homework!
Are you a recent graduate heading to college this term? Perhaps you are someone who is finally realizing their dream of higher education. Maybe you're a parent or grandparent that has been saving money for years to send their child to the school of their choice.
Before you pack your bags and pick out your courses, you have some homework!
Whether or not you have a college fund to help pay for expenses, you need to prepare a budget for each semester, as well as an overall financial plan to get you through the years to your diploma. Planning ahead will not only help you save money, but - trust me here - can help you get better grades and even potentially secure a more lucrative job when you graduate.
For many young adults heading off to school, budgeting for college is the first major step in adulthood. Sure, you might have owned credit cards and earned money at a part-time job, but being responsible for your daily expenses and managing cash flow to get through a long period of time is something that "grown-ups" have to do.
Learning how to budget is a lifelong skill that many do not master, but you can start off on the right foot at college. Let's review some budget tips for college students!
Help Budgeting for College Expenses
Make a List of Your Potential College Expenses
When budgeting for college expenses, it helps to start by preparing a list of items for which you will have to pay each term. Here are some general suggestions:
- Tuition - consider what it currently costs, and any projected increases over the next 2-5 years
- Room and board - what will it cost you to live in the dorms or an apartment (including utilities) and eat? Compare various meal plans
- Cell phone plans/wifi - don't forget monthly costs associated with staying connected
- Transportation - include vehicle maintenance, gas, bus fare, bicycle locks and other gear
- Books and supplies - among many items you'll need include paper, pens, notebooks, backpacks, and a notebook computer. Depending on your major, you may also need to pay lab fees
- Insurance - health insurance, renter's insurance, car insurance
- Personal expenses - clothing and shoes, grooming supplies, etc.
- Entertainment - probably the smallest item on your list of college expenses, but keep a little bit set aside, if you can, for pizza, movies and new mP3 files
Don't worry yet if your projected expenses seem high for each term. We're going to review how you can reduce them, including an analysis of where you can cut costs, and where you should not compromise.
Attending College on a Budget
Realistically Assess Your Income Sources
Budgeting for college expenses requires not only an estimate of cash flow out, but income in. Before you start deciding where to cut expenses and how many cases of Top Ramen you'll need before the winter holiday, take a realistic look at your income sources.
Typically, sources of income for college expenses include:
- College funds - did a family member invest in a 529 plan for you? What are the terms associated with withdrawals?
- Student loans - plan ahead and submit applications well in advance of the first term so you can know whether and how much cash will be available
- Personal savings - perhaps you established a savings account with money from jobs over the years, or maybe a loved one has gifted money for you to use. Caution: only budget including money that has actually been transferred to you. Do not include the inheritance from Grandma if she is still sending you birthday cards!
- Work-Study programs - some institutions allow reduced tuition or other costs if you work a certain number of hours during the term
- Other employment - consider the potential of a part-time job, but also realize hours worked may impact your grades. Will you have to cut back later?
You will want to revisit these figures each term, and make adjustments as you go. If you are fortunate enough to have a lump sum from which to draw, put aside only the amount you'll need for the semester or school year and invest the remainder.
Why is it Important to Manage Your Money at College?
Managing your money at college will set you up for better grades and a brighter future. There are a number of reasons, this is the case:
- Unexpected expenses aside, you'll build discipline and enjoy predictable cash flow with a budget
- Living within your means helps establish better impulse control, which is a skill you will need in the workplace, at home and raising children
- Money is a cause of stress; if you have adequate funds to pay for expenses, your stress level decreases which frees up mental space to focus on your grades and other more enjoyable pursuits
- Graduating with less debt will allow you more flexibility in choosing a career or job
- Less debt will improve your credit score, resulting in better financing deals on automobiles, housing and even improving your chance at your dream job (prospective employers often conduct credit checks)
- It is a great sense of pride to graduate having managed your money well! That sense of well-being will carry forward as you pursue your dreams
Budgeting for College Expenses: Cutting Costs
Planning a college budget is not a one-size-fits-all approach. This is where you need to know yourself and consider the things that are most important to you.
The stress of college can become overwhelming. Saving money and not running up debt are both important goals, but so is graduating on time (however you define that) and in a field in which you are interested - with decent grades!
Ask yourself: why am I making this investment in college? What will cause me the most stress while I am here? When you minimize stress, you can better focus on your academic goals. In short, define the basic items you need for comfort and then you will start to get clarity on where you can cut expenses and where you should not compromise.
For example: Getting rid of your cell phone might seem like a great way to save $60-100 each month. But, if talking with your best friend back East will help you get through an all-nighter, or quell feelings of homesickness, then keeping your phone may be the wiser choice. Perhaps your dorm roommate has a great apartment you could rent at half the market cost? Think about the commute time, the neighborhood in which its located and potential discomfort that could distract you from your studies (pests, HVAC issues, crime, etc.)
Ideas for cutting costs: Could you sell your car and take the bus or ride a bicycle? Consider not only the savings in gas, but also parking, maintenance and insurance. Think about purchasing used books instead of new textbooks for the term. Maybe you could swap or barter with other students - you'll give him haircuts, if he gives you a ride to class each week. Plan your entertainment for the week, including an allotted amount. If you spend $25 on coffee all week, you don't have cash to go out on Friday night. There are many ways to cut college expenses without impacting your studies.
When you are true to yourself, it can help reduce the urge to spend foolishly on too many parties and vacations you cannot afford during Spring Break. Having not compromised on the things that are the most important to you, academic and financial success will build on itself, setting you up for a bright future.