Six Steps Can Help Students Budget Wisely

The holidays — and the bills that often follow them — can make it difficult to manage finances. For students struggling with establishing and sticking to a budget, financial-aid professionals can be an excellent source of assistance.

Financial-aid professionals have the opportunity to communicate with students about financial issues in ways that other departments within an institution do not. They also have access to information — such as enrollment costs and financial-aid awards — used to create students’ budgets.

And ensuring that students are savvy about money management can provide a variety of benefits for institutions and students — including lower default rates for schools and decreased amounts borrowed to pay for college for students. USA Funds^® University advises that a key component in counseling students about financial management is teaching them how to budget.

You may want to share with students the following benefits of budgeting:

• Provides a tangible way of working toward meeting their goals.
• Offers a tool of knowledge, to help them understand how they spend their money.
• Permits them to better organize their spending.
• Allows them to gain control of their finances.
• Helps in planning for upcoming expenses.
• Helps them build better credit scores.

The following are steps you can suggest to your students for creating a monthly budget:

1. Determine monthly income. Even if students aren’t employed full time, they should be aware of all income they receive. They might inadvertently overestimate their actual income by forgetting to account for taxes or other deductions.
2. Determine monthly expenses. Because it is difficult to account for every dollar spent during the month, students should record all of their spending for a one-month period to make accurate estimates.
3. Compare income to expenses. Before creating budgets, many students may have overestimated their income and underestimated their expenses. After compiling information from steps 1 and 2 in a spreadsheet or other budgeting software, it should be easier to compare the two totals, which will allow students to track where they are spending their money.
4. Assess expenses and find ways to cut spending. At this stage students can see if they are spending more than they make. Even for those students who are spending less than they make, it is helpful to analyze expenses. Budgeting offers perspective and provides tools to help students think long term and improve their spending habits.
5. Revise budget. Once your students have identified expenses that they can reduce, you should review their original budgets and lower amounts until their budgets balance. You also should continue to remind your students about the importance of building a savings account, and of thinking of saving as “paying themselves.”
6. Stick to it. Explain that budgeting is helpful to students only if they use it. They must commit to their plans.

In “Helping Students Manage Their Finances,” an online course for financial-aid administrators, USA Funds University provides additional information about assisting students with budgeting as well as considering goals and dreams, and determining needs versus wants. The online course is one of more than 60 offered by USA Funds University.

The financial-literacy curriculum USA Funds Life Skills^® also can help in efforts to educate students about wise money management. The curriculum helps schools teach their students to manage time and money wisely while on campus and after graduation.