II. The Basics: Budget Part I

Do you ever wonder where all your money goes each month and how it gets spent? My parents give me a debit card, and there are times when I have spent $100 in 5 days and I didn't even realize it until I looked at my balance. Budgeting puts the power back in your hands.


It doesn't matter how you create your budget, you can do it anyway you want it: on the computer, paper and pencil, etc. The key is keeping up with it, but you have to find what works for you.


Here's how to start:


Track your expenses


Write down everything you spend your money on for a few days and look over how you spend your money monthly on your bank statements. Make sure you always include the purchases that you consider to be small, like a a cup of coffee from Starbucks because those add up quickly.


Determine how you want to spend your money


Based on your expenses decide how you are going to spend your money. Remember to spend less than you earn. Though it sounds simple, many people do not follow this. Don't take your credit card out to buy something you don't have money for. You may have to pay interest later, which is a waste of money. MSN Money suggests using the 60% rule for your budget. This means that 60% of your budget should go towards your basic living expenses, such as utilities, groceries, and rent. Though this rule may not be practical for a college student since the necessary expenses may take up more than 60%.


General categories and guidelines
Determine your spending by categorizing


Living Expenses: This is an inevitable cost you can't avoid, but you can do somethings to decrease the cost, such as, having a roommate, taking an RA position, or living farther away from campus. Though don't be so determined to cut costs that you live miserably with 6 people in one tiny room.


Transportation: Parking is expensive on or around campus. Consider not having one at all. Here you will save gas money, insurance, and oil changes. Most college towns provide public transportation cheaper than the cost of having a car.


Food: This is one place where many people can go wrong. Groceries should not be more than $150 a month (I spend $50-150). However, there is the problem of eating out all the time. In my town, eating out is the common thing to do when you have nothing else to do. Some places are open 24 hours a day, so people go there when there is nothing else to do. Additionally, fast food purchases add up quickly.


Utilities: This is a partly unavoidable cost. You have to have water, and electricity, but use it when you need to.


Internet: This is also an unavoidable cost, make sure you find the cheapest rate in your city. By shopping around, my internet bill is $15 cheaper.


Other personal expenses: This is a another place where people spend a lot of their money. Such as clothes shopping or impulse buys.


Savings: This is a category that is probably little or non-existent in your money management. This is one of the most important things you can do, so you can reach financial freedom. Be consistent each month by paying yourself first. This means, when you first get your paycheck, automatically put a set amount or percentage into your savings account.


Debt: Many college kids have loans and these need to pay. Make sure you pay the minimum amount so you won't face later penalties.


Final Words


I've tried and failed over and over, but now I have started regularly writing down where I spend my money. There are a lot of freeware personal finance softwares you can use. I suggest you try out a few. There were some great reviews of software, I found myself hating it. I use Buddi to create a budget on my computer. I also use a freeware checkbook program on my phone on a palm freeware application I downloaded from the internet.





Sources:
About.com
MSN Money