Developing a Sound Monthly Budget

Many students start college or career school having had little or no personal experience with loans, credit cards, living expenses, or budgeting. However, understanding and practicing effective money management will help you while you are in school and might also help you more successfully manage your money after you leave school.

What is Budgeting?

Budgeting is the process of planning for the most effective use of your financial resources by defining your expected monthly expenses (such as rent, groceries, telephone, and student loan payments) and the resources you expect to have available (such as your earnings) to pay those expenses.

Developing the Budget

The first step in developing a budget is to estimate your monthly income and expenses. Estimating income is usually the easy part. Tracking your expenses is a bit more difficult and can be an eye-opening experience.

There are several simple methods of tracking expenses, such as listing purchases you make in a spiral pocket notebook or using a computer-based money-tracking program. An easy method for keeping track of your expenses is a simple check register. List what you bought and how much it cost, then total the register each day, week, or month. This will give you a snapshot of your monthly finances and help you decide where to make adjustments.

The following tips will help you get started on an effective money-management strategy.

Estimate your net income. Your net income is your gross monthly income less approximately 28 percent for federal and state taxes and social security contributions.

Calculate your cash flow. Cash flow is your income less monthly fixed and variable expenses. Fixed expenses include housing costs, loans, auto insurance, and anything else that requires a constant monthly payment. Variable expenses include food, utilities, clothing, transportation, and anything that occurs monthly but not at a fixed amount.

Develop realistic spending goals and stick to them.

Revise your budget occasionally based on changing needs and priorities.

Start your savings plan now. Deposit a portion of every check into two savings funds - short-term emergencies and long-range goals. The old adage "pay yourself first" still holds true. A good goal is to put 5 percent of your monthly gross income into savings.

Pinpoint where you can reduce spending and increase savings.

Avoid the temptation of over-using credit cards. When possible, pay the entire balance due on your credit cards each month.

After establishing a budget, you need to monitor your actual expenditures so that you can make any needed adjustments in your spending before finding yourself in a financial crisis.