Importance of budgeting as a student
Being a university or college student requires planning and adjusting. From schoolwork to moving away from home for the first time, getting your own place, grocery shopping to paying your own bills – everything, requires tracking your spending and maintaining a budget.
A budget is a financial plan that helps you to manage your money. It is a detailed outline of your expected income/allowance with expenses commonly broken out on a monthly basis. Budgeting gives you a big-picture view of your money, so you can make informed spending and saving decisions, ensuring that your money is allocated according to your needs and wants.
How to build a student budget
With all your classes and extra-curriculars, building a budget might sound stressful in the beginning, but it doesn’t need to be! You can start building your budget in 5 simple steps to help keep your finances well-managed. Think about that spring break trip you want to go to or a concert that you always wanted to attend. Building a budget can help you achieve those goals without compromising on your routine!
Step 1: Figure out how much money you have to play with
Make a list of all the sources of income you will have for the school year. These could include:
- Student loans
- Scholarship money
- Grants or bursaries
- Income from your job
- Money from your parents or grandparents
Step 2: Calculate your monthly “income
Often when you are a student your “income” is a lump sum amount of money that you need to stretch across the semester or entire school year. Before you begin making your budget, start with how much money you might be getting on a monthly basis from different sources. There are two main types of income: repayable and non-repayable income.
Repayable income consists of:
- Student loans
- Lines of credit
Non-repayable income consists of:
- Job earnings and tax refunds
- Family contributions and savings
- Grants, bursaries, and awards
Step 4: Build a budget using the 50-30-20 framework
There are many different budgeting frameworks that can help you create a budget. A popular one is the 50-30-20 budgeting formula used to allocate your income based on your needs, wants and financial goals.
Needs: 50%
50% of your income/allowance should go to your needs such as tuition, rent (if you live off campus), transportation, food (regular day -to- day food), healthcare and utilities as required.
Wants: 30%
30% of your income/allowance can be set aside for activities that are ‘fun’. These could be eating out (fancy/upscale restaurants), trips with your friends, buying an expensive dress/phone or fitness classes. It is important to stick to the allocated budget in this category, as it’s easy to overspend here.
Savings & financial goals: 20%
20% of your income/allowance should go towards your savings or financial goals. Examples can include paying off your Student Line of Credit once you graduate, or saving towards a big purchase, such as a car or dream vacation! Make sure that the money you’ve set aside for savings has the opportunity to grow.
The 50-30-20 rule is popular due to its simple structure. However, your budget can be customized based on your personal financial situation and the allocation percentages can be adapted based on your income and necessities.
Step 5: Monitor your budget regularly
Make sure that your expenses do not exceed your monthly income. Following the 50-30-20 framework should help in keeping your budget on track.
Here are a few things to keep in mind:
- Reevaluating your ‘wants’ every few months can help you stay on course with your budgeting plans. It is not easy to predict the unexpected, so revisiting your budget and financial goals regularly can help you maintain a realistic budget.
- You can also use our Cash Flow Calculator or the Student Budget Calculator as a great starting point!
References
TD Bank. (2023). Budget management tips for students. TD Bank. https://www.td.com/ca/en/personal-banking/solutions/student-advice/budget-management-tips-students
