Budgeting doesn’t have to be difficult—it’s a process of simple arithmetic.

The keys are to figure out how much you actually spend, write down your income and expenses, compare the amounts, and then make adjustments as necessary.

Create a Budget

People underestimate how much money they spend. That’s because we all spend small amounts of money here and there, and we don’t really keep track of it. Movie tickets, coffee, sodas, fast food, gas, magazines, haircuts-all on top of bigger expenses such as tuition and car payments.

A tried-and-true method for tracking spending is the “spending notebook.”  Be sure to account for every single penny you spend over the course of several weeks. You’ll not only see where your money is going, but you can make decisions about whether all those purchases were wise or necessary.

Pay Major Bills First, Then Budget

Budgeting Worksheet

It’s easier to plan a budget after first setting aside money for your tuition, books, student fees, meal tickets, and other large annual or semiannual costs. Once these are subtracted from your bank balance, you’ll have a more accurate starting point from which to plan a budget for the rest of the semester.

Create a Spending Plan

Once you identify your spending habits through a spending notebook and knock out significant expenses such as tuition, you can get started on creating a budget, also known as a spending plan. Since “budget” can sound restrictive, you might prefer to use “spending plan” as a purposeful map for how to spend your money.

  • Identify income: List the financial assistance paid directly to you each month, family help, anticipated job income, Work-Study income, child support payments, food stamps and any other sources of money you receive.
  • List your expenses: Using your spending notebook and any receipts you’ve saved, determine what your actual expenses are.  As you write down expenses, you will probably start to see areas of unnecessary spending and opportunities to cut back.
  • Compare income with expenses: Once you’ve identified your income and expenses, you need to compare them to see how you’re doing.
  • Make adjustments: If your income is higher than your expenses, great! Not only are you preventing financial stress, but you can set some money aside for your goals—a new laptop, a spring break trip, emergency savings, and more. If your expenses are higher than your income, you have two options:
    • Cut expenses. See Identifying needs vs. wants.
    • Increase income. Increasing income can be difficult in college with limited time on your hands, but you might think about what you can do.

Adjust Your Budget

How do you adjust your budget as your money situation changes?

Income increase

If you take on a part-time job or gain reliable new income through other sources, two healthy budget adjustment decisions to consider include:

  • Increase savings account deposits: Adding just $100 to your savings account each month will build an additional reserve of about $400 over the semester. If you do not have a savings account, now is the perfect time to open one.
  • Make larger credit card payments: How much faster will your balance shrink if you double your payment? Set an account balance reduction target for the semester and call your credit card company. A representative can inform you what your lower monthly interest payment will be based on the reduced balance.

Income decrease

Losing a job or suffering any other loss in income forces you to control your spending—particularly the purchase of non-essential goods and services. Here’s an approach that can help you adjust your budget so you don’t have to cut out entire spending categories:

  • List the areas in your monthly spending plan that are not vital to your living situation, such as snacks, entertainment, and clothing.
  • Figure out how much money you need to decrease from your expenses.
  • Get an additional roommate to help share rent
  • Downgrade or eliminate cable service
  • Eat at home more often, and pack a lunch and snacks for class
  • Instead of buying books, borrow them from a library or share with a friend
  • Only buy essential clothes; shop sales and consignment shops
  • Carpool

Identify Needs vs. Wants

To save money and live on a budget, it helps to really understand the difference between needs and wants. And you probably do understand that, say, food is a need and a latte is a want. But some mornings, after cramming all night for a test or working late, a latte is sure to feel like a need. Maybe coffee is a need but gourmet coffee drinks are a want.

When creating a spending plan and trying to live with limited funds, it’s helpful to really consider what a need is and what a want is.  What you define as needs and wants does not have to remain static.

Use the Needs vs. Wants Worksheet to write down some of your needs and wants-and then look carefully at what you’ve written down. Are the needs really needs, or can they be moved to the wants category?

Needs vs. Wants Worksheet

Now, review your list and think about what’s really important to you and what has lasting value.

  • Do you really need or want everything on your list? Put stars next to the items that are particularly important to you.
  • Are some needs really wants? Cross off the least important wants.
  • Decide if each item makes sense. If not, cross it off, or change it to something that is more reasonable.


Whenever we spend more than our income, we are overspending. For some of us, overspending can be almost unconscious—you buy that latte and new sweatshirt and then go out to dinner without adding up the costs in your head, much less on paper. We’re not even aware of the hole we’ve dug ourselves into until it’s too late. But in order to meet our financial goals, we need to live within our means.

Spending Your Future Income

The average student-loan debt of borrowers in the college class of 2011 rose to about $26,500, a 5 percent increase from about $25,350 the previous year, according to a report by the Institute for College Access and Success. The several hundred dollars these graduates pay each month to pay off the loan is money that can’t be saved or invested for the future. It can’t be spent on other necessities, such as emergency car repairs or household expenses either.  It’s money that’s tied up until the debt is repaid.

While debt for education is considered “good” debt because it’s an investment in your future, all debt obligates your future income because of the payments that must be made. So make sure you use debt wisely-eliminate “bad” debt (debt for depreciating assets, such as car loans and credit card debt) and limit the “good” debt to reasonable amounts.

Paying the Price of Debt

Interest payments on debt work against you. New college graduates carry an average credit card balance of $3,000. Let’s say you’re lucky—or better yet, careful—and you accumulate only $2,200 in credit card debt. Your interest rate is 18% and you pay the minimum amount each month on your card ($40) without any further purchases on your card. How long will it take to pay off your balance? Did you guess five years? Try 10. It will take almost 10 years to pay off the debt. Your total cost will be $4,680 (original balance of $2,200 plus $2,480 in interest).

Watching Yourself Spend

One thing you can do is record your spending activities throughout the day. You can use a small notebook or save notes in your cell phone. This will help you pinpoint where those small expenditures are going. If you mark down small purchases as you make them, you’ll learn to think of each one as a single, purposeful act. Disappearing cash will cease to feel like something that magically “happens” to you, and those convenience store sodas and movie tickets you pick up on impulse will be revealed for what they are: spending leaks.