We show you 5 ways to manage a student budget
Part of student life is feeling like you’re constantly worrying about money. This isn’t true of all students and you might know students in your class who simply ask the Bank of Mum and Dad for more money and make a withdrawal when their heart desires it.
But those students do not reflect the majority. Most students are operating with a limited amount of money in the bank.
Think of money like a bucket full of water – once you’ve emptied the bucket, it’s gone.
You need to budget so that you spend the money you have wisely.
So let’s go through the budget basics:
- What is a budget? A method for keeping tabs on how you spend your money.
- Why budget? You plan ahead so that you cover your needs like rent and bills
- What happens if you don’t budget? Money is limited and if you spend money on a whim, you may not have enough left over to cover your essential needs. This is when people can get into difficulty with their money and you can avoid it by actively budgeting.
So how can you manage a student budget?
Here are 5 ways to manage a student budget:
1. Budget envelopes
- What: You allocate spending categories for your budget; you take out cash for each category and put it in a specific envelope. When the cash in the envelope is gone, it’s gone and you can’t spend any more money on that category. I choose to splurge my clothing budget for the month on one dress, I know that I need to wait another month before spending any more money on clothes. You’ll be even more motivated to maximise your money that month.
- Who it works for: Young people because we don’t use cash typically and it psychologically hurts us more to spend cash than tap a card. If you have an over spending problem you need to try this method.
- Take action: Get your budget envelopes here
2. Automatic budgeting
- What: This was inspired by David Bach’s The Automatic Millionaire. The idea is that you open different accounts including a transaction account for everyday expenses, a dedicated account for your household bills, a savings account and an emergency account. The moment you get paid, you automatically transfer different amounts to these accounts as scheduled transfers to avoid temptations. In this way, you pay yourself first so that your money automatically feeds into your financial goals.
- Who it works for: If you have difficulty with consistency and budgeting for different aspects of your life, including putting money towards your savings account consistently.
- Take action: Read The Automatic Millionaire here
3. 50 / 30 / 20 proportional budget
- What: This was an idea started by Elizabeth Warren – yes, the US Senator Elizabeth Warren. The idea is that you spend different proportions of your money on different things:
- 50% on needs like rent
- 30% on wants like eating out
- 20% towards savings
- Who it works for: If you can distinguish between your needs and wants and have the self-discipline to distribute money towards different areas of your spending.
- Take action: Read more from Elizabeth Warren here
4. 80/20 budget
- What: Think of this as a simpler version of the 50 / 30 / 20 budget. You can spend 80% of your money on expenses but you must save at least 20% of what you earn.
- Who it works for: If you need to start reigning in your spending so that you have at least some money left over at the end of each month. If you’re not good with saving money, tracking your expenses and aiming to save 20% of what you earn is a great place to start.
- Take action: Track your expenses with a Budget Planner here
5. Zero sum budget
- What: This idea sparked by Jesse Mecham which he turned into the You Need a Budget (YNAB) system. The zero sum budget means that every single dollar in your budget has a job and you need to plan how you will use it before you get the opportunity to spend it. You’re being intentional about how you spend or save your money.
- Who it works for: If you have no clue about budgeting and want a system to take control of your money.
- Take action: Read more from You Need a Budget here
A student budget is necessary for most students to ensure you can pay your rent while still enjoying student life. While you may envy wealthier students, you have the advantage of learning how to manage money and save money. These financial skills will stay with you for life so that when you do start earning more on your first graduate salary, you’ll value that money more and make it work for you.
Read More: Get Started: How to Budget in 10min
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