One of the skills rarely taught in school is, budgeting. Yet all students as they graduate from the comfort of school and their home as they move to college, will need to understand and plan their budget. More so, if you are going to be living away from home.
With no real understanding of what a budget is and how to plan one, most often you will learn through trial and error. However, budget planning will help you to use the money you receive from parents or that you earn, more wisely for your studies as well as for personal expenses.
A personal budget is a financial plan
First and foremost, identify your sources of money. That means, the money that you receive from parents, you may earn through a part-time job when in college, any saving through scholarship or grants that you may receive. The next step is to identify the expenses. It may be a good idea here to use Microsoft Excel for this purpose. So primarily you have two buckets; inflow of money and outflow of money that needs to be accounted for.
The next step is to note the outflow of money. This outflow may be either a fixed monthly expense or flexible monthly expense. So, in one row of the excel sheet write down the heading Fixed Monthly Expenses. Under the heading row write the listed items in each consecutive row. These could be:
- school fee
- telephone bills
- room rent
- club fee
- health insurance
- Emergency fund
Try and always put some money away as savings and emergency fund.
In the next row heading write down Flexible Monthly Expenses and then follow that with the listed items in each consecutive row:
- Meal outs
- Daily use articles
The next column heading could be ‘Amount ‘. Under this heading you will write the spending for each row item that you have listed previously. The simple math is that the expense should not be more than the monthly income. Any amount saved must go into the savings account in the bank.
Effectiveness of execution
The effectiveness of execution is directly proportional to your commitment to make it work. That means diligently writing done the expenses daily. Keeping track of the inflow and outflow of money will not only help you in planning your budget better but will also help you in saving some amount for future. Opening a saving account in bank and then conscientiously putting some money away each month will not only instill a good habit in you but also allow you to build a small corpus for future.
One of the good practice to follow would be to not use a credit card for shopping but using cash whenever possible. The actual activity of counting and handing money for what you have bought can be quite a deterrent to spending and also save you from the unnecessary issue of tracking credit card payments and maintaining a good credit history.
Identify and prioritize your financial goals. That means, how much would you spend on flexible expense and how much will you save each month. The budgeting process starts with monitoring the spending. Every rupee saved matters.
Examine your current spending behavior and pattern. This will help you realize which item on the flexible expense has the potential to bust your budget. Be alert.
Remember what a budget can do for you:
- Develop financial discipline
- Help you create a visual spending picture
- Help you decide what you can afford and what you cannot
- Help you create a savings plan
- Develop a good record keeping system
- Become a good consumer
- Put you in control
- Help you in prioritizing and setting goals
- Makes you accountable
Last but not the least, you don’t have to wait to start college to learn how to create a budget. Do it now, which every grade you may be in. Start with monitoring your spending and saving.