personal finance

An Easy Guide to Help College Students Set Up Their First Budget

Courtesy: Alillia Clements
Howard University
Photo: Darreonna Davis
Howard University

College is a time when you learn so many new things so quickly — you're learning about your major and future career, meeting people from around the world and learning how to live independently. But one area that is sorely lacking for most college students: learning about money. 

Nearly half of college students say they do not feel prepared to manage their own money and more than half said they worry if they'll have enough to last through the semester, according to data from Everfi

This was true for Alillia Clements, a 23-year old Stanford University graduate, senior financial analyst at Microsoft and the creator of Gen Z adulting and finance Instagram and TikTok accounts, @financialilliasecure. In spite of her affinity for math and numbers and experience taking economic courses as a public policy major, Clements felt that money management and financial literacy were inaccessible to her. 

"It was me doing an internship over the summer, making money from that, and trying to figure out how it's going to work for the rest of the school year," she said. 

And her trouble with managing money in college would later show up when she secured her first postgraduate offer amid the pandemic.

"My first two months of working … I was just like: 'I'll order DoorDash. It doesn't matter. I live at home, I'm saving money,' or ... 'I'll go to New York next week,'" Clements said. "[W]ithout the proper systems in place, it didn't matter that I was living at home, it didn't matter that I was making six figures because, if I'm not keeping that money, it's for not."

So, if overspending can happen to someone who is a self-proclaimed math and numbers person, it can certainly happen to the rest of us! And it does.

A lot of college students may think that because they don't have a lot of money, they don't need to learn about money. That couldn't be further from the truth. College is the BEST time to learn about money and start building smart habits around making, spending, saving and investing your money.

"College is the best time to develop healthy financial habits that you'll need later in life because you are completely vulnerable in the world as a young adult. The earlier you get in control of your money the better," said Dasha Kennedy, a financial activist and the creator of an international financial literacy online community that serves over 80,000 African-American women.

More from College Voices:
College Money 101: From student loans to setting up a budget
Here's what you need to know about your student loans — before it's too late
Quick tips to help college students start saving money

On the surface, building a budget seems to be intimidating, but it really doesn't have to be complicated. You don't have to spend hours or have elaborate spreadsheets. You just have to take a few simple steps and build good habits.

Step 1: Know your numbers

First step, take an inventory of your key numbers. Those are:

  • monthly income
  • fixed expenses
  • variable expenses
  • savings

Monthly income is what you bring in on a recurring basis from jobs, internships, financial aid and family support. Remember: This is what you get in your paycheck after taxes (not what the job or internship offer is and not your hourly rate).

Fixed expenses are things you need to pay for that typically cost the same amount, such as your rent or phone bill.

Variable expenses are necessities and wants where the prices and frequency vary, such as groceries, transportation or entertainment.

Savings. You can't just spend everything you make; you have to keep some left over in your checking account for any expenses that come up and then save some for longer-term goals like getting your first apartment.

Now do a quick calculation:

Monthly income – fixed expenses = $___.

What's left over, you can use for spending on things you want but don't need. But, you also have to save some.

If you have almost zero money left over right now, don't beat yourself up. Just recognize that this is what is right now and let's dig in and start making some adjustments. You would be surprised how easy it is, with a few adjustments, to start saving!

Step 2: Set up a budget

Setting up a budget is as simple as figuring out — based on what you earn and what your fixed expenses are — what you can afford to spend on extra things and how much you'll put in savings.

One common approach to setting up a budget that works for a lot of people is following the 50-30-20 rule.

That means, 50% of your money goes toward your needs (rent, utilities, groceries, etc.), 30% goes towards your wants (eating out, shopping, entertainment, etc.) and 20% goes into savings.

Although this isn't the only way to budget, it's a great place to start because it's three simple numbers. Should you find that the rule doesn't work for you, you can always make adjustments later. You're not locked in.

"I think it's important to start having [a budget] because you never want to not be able to pay the rent," said Nan J. Morrison, the president and CEO of the Council for Economic Education.

If you can't afford to save 20%, set a fixed amount that you can save each month. Then, the next time you're checking in on your finances to see where you're at, see if you can increase your savings — even a little bit — until it's at least 20%. What's important is that you start saving now.

Step 3: Track your budget

You've got to figure out your own budgeting style, whether that's writing it down with a pen and paper, setting up a spreadsheet on your computer or using a personal finance app.

Those who prefer to write their information out to better retain it can use the following worksheet to develop their new budget. Whether you want to print it or type it out, this method is good for understanding exactly where your money is going.

"I think one thing that's super handy is a pen and a piece of paper or a spreadsheet because you can just kind of write down, 'What's my income?'… It doesn't have to be in a lot of detail, but  'What are the things I need to spend money on or that I want to spend money on?'... and just kind of  write down those things you like to do on a regular basis and one or two things you might be saving for," Morrison explained.

For those who may not enjoy the process of having to write everything out — Don't worry! Online resources such as the Mint Budget Planner and Tracker and digital tools offered by your bank or other financial institution, plus automating things like bill pay and savings, can aid you in developing a budget that you can easily and consistently stick to.

"It [automation] plays a huge factor in easing the stress of budgeting because it does all of the heavy lifting for you. Once you've connected your bank account, a budget app will pick up on different spending trends you didn't even know you had. Automation also makes it easier to save and manage money without thinking about it," Kennedy said.

Step 4: Find ways to cut back your spending

Once you realize how much you earn, how much you spend and build a system to properly track these items, it's important to set saving goals and cut back on excessive spending.

College students spend a lot of money on essentials like rent, course materials, groceries and transportation, plus extra expenditures like food, clothes, entertainment and going out. Understanding where you can spend less money will better help you budget and save.

"I have this habit ... of seeing a price tag and just throwing my money at it," said Galaxy Okoro, a 23-year-old senior at Howard University. "I really had to teach myself … So, I decided … I'm going to get a savings account, and I'm going to start putting my checks towards my savings … so, I kind of budget out how much money I take at a time."

Galaxy Okoro, a senior health sciences major at Howard University in Washington, D.C., said she's had to work at building smart spending and saving habits.
Courtesy: Galaxy Okoro
Galaxy Okoro, a senior health sciences major at Howard University in Washington, D.C., said she's had to work at building smart spending and saving habits.

Okoro has found ways to cut back spending on her course materials as a health science major.

"I like to look for deals," Okoro said. "So, before I make a large purchase, I'm gonna make sure [that] I go on all the websites: 'Is it cheaper here?'"

"I had to take first aid this semester, and our teacher recommended that first aid training kit, and it was like $30 … This training kit only has one set of tools, and I can't really use it after that," Okoro explained. "So, I was just like, 'OK, I'm gonna go on Amazon,' and I found a $9 first aid kit … I just saved, like, $20!"

Now, this isn't to say just because you started budgeting you have to cut out all your spending – and fun. It just means be aware of how much you're spending and where, figure out where you can make cutbacks and try to save where you can.

Do you need to buy a latte every day on the way to class? Probably not. But, if it's really important to you, then do it! But, then take a look at your budget and figure out other areas where you can cut your spending. It's all about priorities: Prioritize the things that are important to you and cut back on the things that aren't.

Step 5: Separate your checking and savings accounts

Saving is a two-pronged process: You need money that's accessible short-term for your everyday expenses and unexpected expenses that come up. Plus, you need to put some in savings that you won't touch for a long time.

"It's all about balance," Morrison said.

Checking account. You should keep some money in your checking account — don't take it down to or close to zero. You will run the risk of overdrafting your account (taking out more than you have in there) and then you'll get slapped with a fee. That could be $25 or more. And, you never know when you'll have an unexpected expense, so you want cash handy to be able to cover it.

Savings account. You should set up an automatic amount to go to a savings account every month. It doesn't have to be a large amount if you don't have a lot of money, like most college students. But, if you automate it and get used to a little money being swept off to savings every month, you'll never miss it. You want that money somewhere where it can grow and make more money. And, the earlier you start, the more money you'll have. Simple as that!

"Separating your income by a checking and savings account is the easiest way to protect yourself from yourself," Kennedy said. "I would even suggest going as far as keeping your checking and savings account at different banks because it's one of the easiest ways to save money and avoid the temptation of overspending or having multiple savings accounts for different reasons."

Unexpected expenses such as a broken laptop, a flat tire or an illness can happen to anyone. So, you just have to be prepared. Have some cash in your checking account at the end of every month so that when something comes up, you're not caught off guard.

It's also important to recognize what future expenses you want to save for. This can range from relocating upon graduating from college (maybe you want to move to New York City or another big city), making student loan payments or preparing for a post-graduation vacation.

All of these things cost money! And racking up credit-card debt isn't the answer. If you start budgeting now, you won't get yourself stuck in a cycle of debt later on.

Automation using apps and digital tools from her bank have greatly helped Clements in managing her money. 

"My savings account has different buckets and when it's automatically pulled out of my paycheck, it's also automatically distributed to my different goals," Clements said.

She does this through a feature on her banking app, Ally.

"I usually just have everything done for me through my different tools," she said.

Step 6: Set up regular check-ins … with yourself

Budgeting, contrary to what you might think, doesn't require a lot of your time. All you have to do is:

  • Decide what your budgeting approach will be (like using the 50-30-20 rule)
  • Track your budget — by writing it down, using a spreadsheet or app
  • Check in with yourself regularly (weekly, monthly or at the start of each semester) to see if you're on track and make adjustments if necessary.

That's it! It's that simple.

You may want to check in monthly at first, but if you have a spending problem, you may want to check in weekly with how much you're spending so you're not in a bind at the end of the month and panicking over how you're going to pay the rent.

"Find a way to consolidate your spending, make a date with yourself to look at it Sunday night or the first of every month to see where your money is going," Morrison recommended.

And, you don't have to do it alone.

"If you have a trusted friend or two, picking a time (or two) a year to talk about goals and investments — and your budget! — can be very helpful. It keeps you accountable," Morrison explained.

And don't worry if you're not always "perfect" in your spending or saving. No one — not even your favorite money guru — is perfect.

The key is to start now: Build good habits and check in with your progress. If you overspent last month, make the correction this month and get back on track. Don't beat yourself up or worse — keep overspending month after month until the problem snowballs out of control.

Being in control of your money is one of the most important things you will do to set yourself up for long-term financial success.

Here's what I've learned about budgeting

Before I began researching, reporting and writing this article, I'll admit, I did not have a budget. What held me back from starting was not knowing where to start and believing that because I had limited income and very few expenses, it wasn't necessary to start.

In the course of writing this article, however, I learned that budgeting is essential to saving and, eventually, building your money.

I learned that all the things it takes to start a budget are already at my fingertips, and it isn't as hard as I thought!

Believing that just because my income was limited and I had few expenses was a mistake on my part in my financial journey. Now, while in college, is the best time to begin practicing money management.

As the first of the month approaches and I dig into my savings to pay my rent, I will begin to create a budget based on my income, needs and wants — and I'm going to use the 50-30-20 rule.

I need things like groceries and toiletries, but I also want to have money to spend on self-care like massages. And my new annual savings goal is $5,000.

I think the hardest part for me will be consistency and scheduling check-ins. Those require a lot of discipline that I haven't had in the past with my finances.

Ironically, I'm excited for the challenge. Understanding how beneficial money management and budgeting are, I'm hopeful for what this will do for me post-graduation — which isn't far off at this point!

"College Money 101" is a guide written by college students to help the class of 2022 learn about big money issues they will face in life — from student loans to budgeting and getting their first apartment — and make smart money decisions. And, even if you're still in school, you can start using this guide right now so you are financially savvy when you graduate and start your adult life on a great financial track. Darreonna Davis is a third-year journalism student at Howard University and a three-term NBCU intern, working with the CNBC Specials Unit. The guide is edited by Cindy Perman.

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