Stetson Law Financial Education

You can create your budget for a month, an academic year, or a calendar year. You may also want to make a monthly budget for an academic term, such as the fall semester. Keep in mind that your income may change from month to month, and not all of your expenses will be the same each month. Include larger expenses, like car insurance and books, and seasonal expenses, such as a trip home during the holidays or higher electricity bills in the summer when air conditioning is used.

To create a budget, use a tool to track your income and expenses. You can use pen and paper, a simple spreadsheet, or a budgeting app. Many banks offer budgeting tools, so find what works best for you.

The Money Advice Service Budget Planner is a free interactive tool that can help you create your budget.

Money Advice Service Budget Planner

First, estimate how much money you will have coming in each month. Use these tips to assess your income:

• Your income may come from sources such as your pay from work, financial contributions from family, or financial aid including scholarships, work study, and loans.
• If you are working while in school, check your records to see how much your take home pay is each month. If most of your earnings come during the summer, estimate your yearly income and divide it by 12.
• Include income from any financial aid credit balance refunds, which is the money left over after your aid is applied to tuition and fees.

To estimate your monthly expenses, start by recording everything you spend in a month. This may take time, but it is worth it because it helps you see where your money goes and how you can manage it better. Then review your bank records and credit card statements for any automatic payments you might have missed.

You also need to estimate your college costs. In addition to tuition and fees, be sure to include books, supplies, and travel expenses. Look for details on what is included in the cost of college and tips for reducing these costs.

Once you have identified your expenses, group them into two categories: fixed expenses and variable expenses.

Fixed expenses stay about the same each month and include rent, mortgage, car payments, and insurance. These obligations usually do not change, unless you decide you are spending too much and find a cheaper option. When creating your budget, divide large payments into monthly amounts. For example, if you pay a $1,200 insurance bill in two $600 installments every six months, divide it by 12 so you know to set aside $100 each month.

Variable expenses are flexible and change from month to month. Examples include groceries, clothing, eating out, and entertainment. Keep an eye on these expenses to make sure they stay within limits and do not push your budget over the edge.

Include savings as a fixed expense in your monthly budget and pay yourself first every month. Your savings can serve as an emergency fund to help you handle unexpected expenses. Aim for an emergency fund that covers three to six months of your expenses.

Now that you have identified your sources of income and expenses, compare the two to balance your budget. Simply subtract your expenses from your income.

If you have a positive balance, your income is greater than your expenses. In other words, you are earning more than you are spending. Do not look for new ways to spend the extra money. Instead, put it toward your savings to build an emergency fund or to support future goals like buying a car. If you have a positive balance but you have borrowed student loan funds, pay back some of your loans and consider borrowing less in the future.

If you have a negative balance, you are spending more than you have. You will need to balance your budget so that your expenses do not exceed your income. This may include monitoring your variable expenses, reducing unnecessary costs, or finding ways to increase your income. Spending less is often easier than earning more. Try eating out less, bringing your own lunch, using a shopping list when grocery shopping, and buying only what you truly need. Before every purchase, ask yourself, "Do I really need this?"

Now that you have created your budget, make sure it stays a living document that you update over time. Keep these smart practices in mind:

• Review your budget every month. Regular reviews will help you stay on track and avoid being surprised by unexpected expenses.
• Forgive yourself for small mistakes and get back on track. Many people overspend because they buy on impulse. The next time you feel tempted, ask yourself:
  
  
  1. What do I need this for?
  2. Can I afford this item?
  3. If I buy this now, will I still be happy a month from now?
  4. Should I save this money for a financial goal?
  5. Will this item go on sale if I wait?
  6. Do I need the brand name or can I get the generic version?

When you take a moment to think about what you are buying, you are more likely to make choices that support your budget goals.

Credit cards are valuable tools you will likely use throughout your life. Keep these smart practices in mind:

• Pay off your balance every month or at least more than the minimum payment.
• Use your card for needs, not wants. Most people overspend because they buy on impulse. The next time you feel tempted, ask yourself if you really need the item.
• Never skip a payment. Missing even one can hurt your credit score.
• If you use a credit card, choose one with rewards. Many cards offer cash back that you can apply toward paying down your balance.

Additional Resources

• Using a Credit Card
• Free Annual Credit Report

The cost of Bar Prep is not something you want hanging over your head, so plan for it now and avoid the stress later. Start saving early and aim for $500 each semester which comes out to about $125 a month. If you are working, pay your savings account first before covering other bills. If you will not be working while enrolled and are receiving financial aid, set aside $500 from your financial aid refund each semester.