Budgeting & Spending Plans
How do you know you aren't overindulging on Door Dash? Or that you are on track with the savings goals you identified? What about other financial benchmarks, like accelerating your student loan pay off or starting to invest? Spending plans and budgets are great tools to help guide your financial decision making as well as help pave the way for other opportunities you might want to take advantage of with your dollars.
A budget is an itemized summary of likely income and expenses for a given period of time. Simply put, it’s a breakdown of the money you will bring in and what you plan to do with that money over the span of a day, week, month, semester, or year.
Budgets can be made using a spreadsheet, online tool, or just a pen and a piece of paper. Regardless of what method you use or how much money you have to work with, a budget will help to keep you organized, give you a better idea of your financial situation, and allow you to feel more confident in the financial decisions you make.
Planning and monitoring your budget will help you identify unnecessary expenditures, allow you to adapt quickly if your financial situation changes, and make you more likely to achieve your financial goals. When you actually see the breakdown of your expenses, you may be surprised by what you find; this process is essential to fully grasp how all of your spending decisions can impact you. While each individual's budget may look different, the steps in creating your spending plan are fairly universal:
- Reflect on goals and values
- Identify your income and expenses
- Develop a plan
- Reevaluate and adjust
You may not feel like you need to stick to a strict budget while in school, but getting into the habit of using a spending plan as a student can make it easier to manage your money as your finances continue to get more complex.
Oftentimes when college students first engage with Personal Finance subject matter, messaging about the importance of budgeting tends to be the dominant theme. While the focus on budgeting isn't an issue in and of itself, the way budgeting is talked about to the student population typically comes with assumptions and condescending remarks, almost always insinuating that the cause of students' financial hardships is solely caused by overspending on expensive coffee and having one too many streaming services. This kind of dialogue not only overlooks significant systemic issues within higher education that cause financial hardship, but also can lead to restrictive and unrealistic budgeting expectations. Long-term, successful money management involves balance, mindfulness, and passion driven decision making.
Value Based Budgeting
As you think about creating your own spending plan, it's important to connect your budget to your greater life values and financial goals. Budgeting will always entail some sacrifice as we typically don't have enough dollars to do it all at once- we inevitably have to prioritize our choices.
But aligning your priorities with how you spend your money doesn't mean giving up the fun or joyous things you like to do with money. Instead, it means that in order for us to achieve our goals and enjoy the things that matter most to us, we will need to cut back on spending in areas that really don't matter to us.
Want to learn more on Value Based Budgeting? Check out Truist's article on Budgeting By Values.
Take time to reflect on your goals and values and ask yourself how your spending plan will foster the pursuit of these visions. Need help articulating your goals? Visit the Goal Setting topic page on our site!
Do you check your bank account at the end of the month and wonder where all the money went? Before you can manage your money, you have to know how you’re spending it. The most important step to creating your budget is to understand how money comes in and why it goes out.
What are my Sources of Income?
List all the sources of money flowing into your bank account (e.g., work, student loans, parents) each month, and the amount that comes in from each source. If you get only one disbursement per semester from financial aid (e.g., student loans and scholarships), you can determine the monthly allowance by taking the amount refunded to you less the cost of your books and dividing it by the number of months in the semester.
Example | You earn $400/month from your job, and you expect to receive a $1,200 refund after all your financial aid disburses. For budgeting purposes, you have $600/month flowing into your account for a six-month period of time. Although the entire refund of $1,200 will be deposited into your account in August, it needs to last you to the end of December.
Where is My Money Going?
The best way to get an understanding of your current spending is to analyze what you buy and create a list of total expenses. This includes major expenses such as bills and transportation along with items you may not always realize are adding up, like streaming services and cups of coffee. If you use a debit or credit card for most of your purchases, you can download a list of transactions from your online account. If you're a cash user, you'll probably need to track your spending by hand for a few months to create your list. Track your purchases for at least a month, but a more accurate understanding of your expenses will require tracking for 3-6 months.
Once you've compiled your list of transactions, categorize each expenditure and then total each category by month. This will give you the best snapshot of your expenses and allow you to see how much income you will need to bring in to cover your costs or what needs to be cut down to stretch your dollars the furthest. Categories can be broad like needs or wants; fixed expenses or variable expenses, or more detailed- housing, food, entertainment, etc.
Commonly used spending categories for detailed tracking:
- Rent/Housing
- Utilities
- Transportation
- Food
- Health
- Personal Care
- Subscriptions/Memberships
- Entertainment
- Giving
- Saving/Investing
putting it together
Once you've identified the income you have to use for the week or for the month, and after you have reviewed your spending and narrowed down the categories you will plan for moving forward, it's time to put the information together and give yourself monetary limits or spending amounts to stay within moving forward.
Several different resources our featured on this topic page, like the CashCourse Budget Wizard, to assist you with putting your spending plan together.
budgeting benchmarks
In addition to the use of budgeting templates and apps, there are several budgeting benchmarks that can be used to provide further direction for your spending plan.
Zero-Based Budgeting
The Zero-Based Budgeting model is one of the most common approaches to budgeting. Zero-Based Budgeting calls for assigning every dollar of your income a specific task or monetary limit to spend on a specific category. The goal is to use all of your funds within the given budgeting timeframe so that you end either the week or the month with a $0 balance.
This budgeting method may work best for individuals with limited financial obligations or for those that are willing and able to track their spending or create financial systems that ensure they are staying on target with the plan they have created.
Individuals who have complex finances or have limited time and desire to review their spending behavior may want a less detailed intensive way of creating their budget.
Percentage-Based Budgeting
When it comes to creating a spending plan, Percentage-Based Budgeting uses a broader approach compared to the Zero-Based model. Rather than focusing on the spending limit for each individual category in your budget, Percentage-Based Budgeting will account for more general areas such as Total Spending, Need Spending, Want Spending, Savings Goals, and Debt Payments. Your income is then allotted by percentage to the respective spending umbrellas.
50/30/20 Budget
The 50/30/20 Budget breaks down your spending by Needs, Wants, and Savings:
- 50% of your income is used for any expense you deem a NEED
- 30% of your income is used for any expense you consider a WANT
- 20% of your income is used to meet goals or targets for SAVINGS
70/20/10 Budget
The 70/20/10 Budget is in some ways even broader and breaks down your budget by Spending/Expenses, Savings, and Debt Payments
- 70% of your income is used for any and all EXPENSES
- 20% of your income is used to meet goals or targets for SAVINGS
- 10% of your income is to pay down outstanding DEBT
Percentage-Based Budgeting is most ideal for individuals with a lot of financial responsibilities who need a less time intensive way of thinking about their spending needs and household budget.
Once you have your spending plan in place, you'll need to monitor and track your progress on either a weekly or monthly basis. There are a number of tools you can use, including spreadsheets, third party apps, bank apps, etc.
Tracking with spreadsheets
For inspiration on tracking by hand or with a spreadsheet, check out these resources:
Tracking with mobile apps
If you would prefer use a budgeting app or similar money management platform, the most important consideration is security. Check with your own bank to see if they offer a budgeting app or have a robust way to track using their online access. If they do, you may want to consider using your bank’s app as they already have your information on hand. If you decide to go with a third party app, check with your bank to be sure you still have fraud protection and review the security features offered by the third part platform.
Review our site's Utilizing Banking & Personal Finance Apps subtopic page for more information!
Not sure which method would suit you best? Watch this short video from Better Money Habits!
When you add up your monthly expenses, do you notice any surprisingly large numbers? Did you spend $100 at restaurants or on yet another new outfit?
Begin with such "wants" that you may be overindulging in. For each type of "want," decide on a reasonable monthly limit that will help you balance your budget. Would it help you reach your goals if you limited yourself to spending $40 a month at restaurants and did more shopping at the grocery store? Can you get by without a monthly clothing or electronics expenditure, making such purchases only after you reach savings goals? Set a cap on your "want" expenses and see if you've balanced your budget.
If you can't trim enough from your "wants" in order to balance your budget, you will need to reduce your variable needs expenditures in the short-term and perhaps your fixed needs expenditures in the long-term. This may mean taking the bus instead of driving and finding less expensive housing next year. The alternative to cutting down expenses is to look for ways to grow your income. As a student, you probably aren't in a position to be work with an employer beyond 20 hours a week. However, you may be able to add on a side hustle or two like tutoring, thrifting, or house sitting, that gives you minimal or flexible hours to make additional cash.
Need other tips to control your spending and stay on track with your budget? Check out the Your Money and Your Mind video featured under the Additional Goal Setting Resources section!
Additional Budgeting Resources
CashCourse budget wizard
Looking for a Budgeting alternative to Excel or Google Docs? Try the Budget Wizard on CashCourse! Sign up for a free acount and create your spending plan. Budgets are saved to your account to allow you opportunities to adjust, update, or even create multiple plans.