What are valuable budgeting skills for students?
Earning a college degree requires two connected budgets. You need skills to draw up a project budget for the full 4-year term. Furthermore, you need to create a monthly budget. Tracking and maintaining the budgets is an essential skill you will need.
Your project budget’s purpose is to ensure that you can afford the investment in a college degree.
The monthly budget’s purpose is to stay in control of your money and not to overspend. Any overspending may affect if you can afford to earn a college degree. It will bring your project budget out of balance.
Project budget skills
Like any budget, your monthly budget should be connected to your financial goals. The most obvious goal is attending college and earning a degree. However, you should clarify, what are the financial aspects of your goal? If you are aiming for an undergraduate degree, then you may not yet know what your major will be. However, you can research for each of your possible choices, what are entry-level salaries with such a degree. This gives you a sense of how much of that income you can dedicate towards potential student loan repayment.
If you are lucky, your parents have the means to fund your college education. You should still have a conversation with your parents about what their expectations are with regards to spending levels, your autonomy to earn and spend money, and if they expect a certain grade point average (GPA).
If parts of the funding for your education will be on you, then you need to create a budget. The goal of this budget is to set limits for how much money you can spend during the school years. For this budget, you will have to determine the maximum loan amount you are willing to borrow. To draw up your college project budget, you need the following skills:
- Communication skills for family funding
- Research skills to find scholarships and other funding sources
- Research skills to determine projected salaries
- Basic calculations for the take-home pay based on the salary
- Advanced calculations of the repayment schedule
- Realistic assessments of your ability to earn some money while a student in college
- Ability to make up a few what-if scenarios
- Ability to compare different choices
With your continued application process, you want to fill in different colleges’ financial aid offers in different scenarios. You will see which colleges you can attend based on financial projections.
Finally, when you have been accepted into a particular college, you need to make sure that your project budget is as detailed as possible in terms of funding sources and expenses to be expected.
Monthly budgeting skills
Budgeting as a college student is a bit different than regular family budgets. Expenses for a college student can be rather lumpy. Tuition and fees need to be paid at the beginning of the semester or trimester. You also need to buy textbooks. If you live off-campus, you may have to come up with the first and last month’s rent.
Typically, you will not be able to save money for long-term goals. However, you want to keep an emergency fund aside. When you have to tap into the emergency fund you need to save to replenish it.
As a student, you have to master the skills to:
- Project future expenses accurately
- Ensure that cash is available when expenses are incurred
- Accumulate savings for future expenses
- Discipline not spend money that is saved for future expenses
- Discipline to track your expenses
- Make changes when your actual expenses don’t match your plan
- Ability to make day-to-day spending decisions wisely
In short, you need all the skills to manage a cash flow budget in business. You further need the skill to connect your project budget with your monthly budget. Last but not least you need to adjust if planning funding does not come forward or if expenses are higher than expected.
Attending college is not all about money. You want to focus on studying subjects and make connections with fellow students. Budgeting properly may be inconvenient, but it will give you the peace of mind that you can afford that education and the good times that come with it.
The most important thing is to have a budget for the entire project and to secure as much as possible each funding source. That includes having frank conversations with parents and maybe grandparents about what their abilities are to help you gain that education. Also, learn what their expectations are with regards to your achievements and discipline. It may be good to have a conversation about their own experiences and about what fears they have if you won’t succeed in college.
Next, you want to secure as much funding through grants and scholarships as possible. Grants and scholarships are free money, that you don’t have to repay. Even if these grants lower what your parents have to contribute, this is a good deal. Unless your parents are independently wealthy and you’d feel bad to take the grant money away from people that really need it, you want to take advantage of the free money.
Planning a frugal life is the best insurance that you can afford a college education. This starts with college choice, as this is the biggest cost item. You also can save on housing, textbooks, or food. Sometimes sharing housing and food can also enhance your social connections.
Overall you want to avoid loans to finance your education. Student loans are made readily available and it is tempting to take advantage of them. However, student loans limit your future choices of employment or developing your life. You have the obligation to pay interest on the loans and pay back the principal. These obligations can force you to stay in a job you don’t like or forego for an advanced degree. It can also make you delay starting a family. Debt limits your freedom of decision-making.
Budgeting is important for your financial stability. It aligns your long-term goals with the income you achieve right now. As a student you are learning many skills for your career and your life. Budgeting is the most transferable business skill for your personal life.
A lot of life’s challenges evolve around money. Because having money translates into freedom of choices. Having money means alone is not enough, you need to have it available when you need it. This skill to save money in times of relative abundance and to spend it at other times is the essence of budgeting.
Students need business-level budgeting skills
Earning a college degree requires a detailed cash-flow budget. You will exercise the skills:
- Estimate costs of the project
- Calculate the return on investment
- Find sponsors to fund the project
- Track expenses against the plan
- Make adjustments when actuals don’t match the plan
It is important to get this right because it impacts your future life in a profound way. If you overspend on college education you will not be able to afford a family or buying a home, or you will impede your ability to save for retirement.