As a student, budgeting may be more difficult for you than it is for someone receiving a regular paycheck. Loans are usually dispersed in lump-sum quarterly payments. Faced with a large amount of cash-on-hand, you may find it difficult to keep in mind that a loan of several thousand dollars must cover expenses for 9-12 months.
Two important strategies for dealing with quarterly or annual lump-sum payments:
- Deposit the financial aid check as soon as you receive it, preferably in an interest-bearing account.
- Investigate the possibility of investing the check in an account or fund which pays a higher rate of interest than a checking or savings account.
You must work within limited financial resources. Therefore, as soon as you know the dollar amount of your resources for an academic year, take time to plan your annual budget. This will be crucial to your financial health.
A positive attitude will help make budgeting less painful. Try to view the budget as a challenge that will help you meet all obligations with all available resources.
Before you attempt the actual mechanics of budgeting, analyze your cash flow situation. Is your income on a quarterly or yearly basis or is money coming into your household weekly or monthly? You must know what your expenses are and how often they occur. Each budget is unique and must consider individual needs, values, wants and goals.
BECOMING FAMILIAR WITH THE MECHANICS OF A BUDGET
Next comes the actual mechanics of budgeting. To insure success, keep your budget as simple as possible. The easier a budget is to handle, the more apt you will be to stick to it. To develop a budget:
- List all of your sources of income.
- List all of your fixed expenses. Fixed expenses are monthly or yearly expenses that are unavoidable because you have already committed yourself to them. They are usually unchanging in their amounts.
- List all of your variable or day-to-day expenses. Variable expenses are those that occur in different amounts, and may not occur with regularity. An easy method for estimating variable expense is to keep track of every penny that you spend for two weeks. By doing this you will see where your spending priorities lay and will be able to allocate your funds accordingly.
Savings should not be considered just an option if there is any left-over money, but should be a planned expense and treated just like any other monthly bill. If you find saving money is impossible as a student, be aware of this very important aspect of the budgeting process and practice it as soon as you begin receiving a regular salary.
Sylvia Porter, a well-known financial advisor, mentions three expense categories people usually forget when planning a budget. These categories can lead to the collapse of your financial plan. Ignore them at your peril.
NIBBLERS - little things you take for granted that eat away at your money (laundry, haircuts, snacks, newspapers).
BOUNCERS - expenses that occur once or twice a year and are easy to overlook (insurance premiums, federal, state and local taxes, personal property taxes).
SLUGGERS - emergency unplanned expenses that are disastrous if you have no savings account to fall back on (medical expenses, appliance replacement, car repairs).