This article is provided by Rae Steinbach. Rae is a graduate of Tufts University with a combined International Relations and Chinese degree. After spending time living and working abroad in China, she returned to NYC to pursue her career.
Higher education is more important than ever, but many students and young people don’t have the knowledge to intelligently manage their financial goals. In fact, over 40% of student loan borrowers aren’t even making payments. Since financial literacy often takes a back seat to other subjects, it’s important to research this information on your own in order to stay within your means.
College is a great time to begin budgeting, as it helps you develop crucial skills that will be important throughout your life. It also promotes financial responsibility and understanding how to manage money on a regular basis.
Even though your lifestyle may change after graduation, it’s still important to get at least a basic understanding of how to budget. It will be much easier to build a strong foundation when you can pick out an apartment insurance plan based on what you can afford.
By the time you graduate, you’ll be prepared to deal with the realities of working life without having to worry about your finances. We recommend starting your first budget during a transition, such as at the beginning of a semester or long break.
It can be difficult to know exactly how much you’re earning during college, since hours are often irregular, but this is the first step toward creating a budget. In general, you should try to underestimate your income rather than overestimate.
It’s much better to end up with extra money at the end of the month than find yourself in debt. You should include all sources of income, including wages, allowances, and gifts.
You’ll need to take taxes into account when looking at your income. It’s likely that a portion of it will need to be set aside, especially if you’re self-employed. If you’re not sure how you’ll be affected by taxes, contact an accountant or a friend who’s knowledgeable on the subject.
You may even be able to find information for free at a local library. Once you graduate, you’ll also likely be responsible for student loans. Keep in mind, the average American students graduates with a debt of nearly $40,000.
Again, expenses are tough to measure exactly, so start with the most important and consistent ones before moving on to the rest: tuition, rent, food, loans, and the like being the essentials. If you’re having trouble estimating, look at your bank statements and see what you spend in a normal month. This will also help you notice unnecessary spending you can cut out.
If your parents cover any of your expenses, they don’t need to be included. You should aim to spend 50% of your income on needs, 30% on wants, and leave 20% aside for savings. This is known as the 50-30-20 rule.
Balancing Your Budget
Now that you know exactly what’s coming in and going out each month, it’s time to find a way to balance your budget. A balanced budget has at least as much income as expenses, meaning that you’re not losing money. Remember, taxes and savings need to be included, so your income should always be greater than your spending, taxes, and savings combined.
If you’ve followed these steps, congratulations! You’re well on the way to financial sustainability and responsibility.
Starting a budget early will help you be comfortable with managing your own finances from an early age, rather than having to learn for the first time when you’re in the workforce. Good habits will last throughout your life and help you navigate various financial situations.