Download: Budget Workbook
Use our Monthly Budget Workbook tool to help you set budget targets for regular expenses and financial goals.
What is a budget?
A budget is a proactive plan for how you will spend your money. It is not a record of where your money has gone (for example, your bank account transaction record is not a budget).
Why is budgeting so important?
It is the foundation of financial success because…
- It reduces financial stress by reducing financial uncertainty
- It helps you identify problem spending areas
- It allows you to spend money on what is important to you by reducing impulse spending that’s not important to you
- It can reduce fights about money in intimate relationships
- It helps you reach financial goals and save for the future
Seven Steps to Build a Budget
Goal: Spend all of your anticipated income on paper before spending it in real life.
Step 1: Pick a budget method and determine a timeframe
- Mobile Apps (check for security features like data encryption and multi-factor authentication)
- Excel or Sheets Spreadsheet (there are free, downloadable templates available online)
- Paper and Pencil (there are printable budget templates and workbooks available online)
- Timeframe: For what period are you budgeting? Semester? A month? Two weeks?
- We suggest monthly or bi-weekly.
Step 2: Determine your income for the selected timeframe
How much is coming in from all sources? Enter that income into the income section of the budget.
- Employment (estimate take-home pay at approximately 75-80% of earned wages)
- Family Assistance
- Financial Aid refunded to you
- Savings Withdrawals
- Other Income?
Step 3: Determine expenses for the selected timeframe
Create budget categories and assign a dollar amount to each category. Enter the budgeted dollar amount into the expenses section of the budget.
- Unsure what categories to include and how much to allocate? Use an expense tracker to review past spending information.
- Don’t add too many categories. Budgeting should be simple yet effective, so you will actually do one each month.
Step 4: Pay Yourself First: Allocate at least a portion of income to savings
Build this habit over time. Start small and increase your savings percentage over time. For example: Start with 5% of each paycheck and increase by 1% every six months. (Long-term goal – 20% of income toward savings goals)
- Three savings fund types:
- Emergency Savings: Set an initial goal of $500-$1000 during college. You may need more or less depending on the cost of expenses you cover on your own and availability of financial support from family. Set secondary goals of 1 month, 3 months, and then 6 months of expenses (needs only) over time.
- Revolving Savings: Save for irregular, but expected, future expenses. Add all upcoming, irregular expenses (birthdays, holidays, personal care, insurance premiums, etc.) and divide that number by 12 to get your monthly savings goal. Use the revolving savings planner in the budget tool to brainstorm how much you spend on these during the year.
- Short- and Long-term Financial Goals: Once you have a fully funded emergency fund consider saving for short and long-term financial goals. These include lifestyle goals for major purchases like vacations, cars, or houses. You can also begin thinking about long-term savings through retirement and other investment accounts.
Step 5: Check: Does your budget work?
Goal: Income minus Expenses = $0
- Income minus Expenses greater than $0? Great! Allocate that extra income to savings goals or spending categories.
- Income minus Expenses less than $0? You have two options, reduce expenses or increase income.
- Decrease expenses: Review your non-essential categories and try some of these options.
- Are there non-essentials that significantly improve your quality of life? Prioritize those expenses and cut or reduce non-essentials that are less important to you.
- Identify free or low-cost alternatives you can substitute.
- Examples: The public library offers free audio and downloadable books. Borrow outfits from friends. Get a lunchbox and prepare easy meals and snacks to bring to campus.
- Cut spending by a small percentage across all variable expense categories like groceries, dining out, gas, entertainment, etc. These are generally the easiest categories to reduce.
- Review fixed expenses for lower-cost options. Some fixed expenses to review regularly include:
- Car Insurance
- Streaming services
- Phone plans
- Dining plans
- Increase income:
- Identify skills you have to start a small business. Talk with trusted faculty to help brainstorm ways you can use skills you’ve learned in your major to start a business. If you do this, be sure to keep receipts for business expenses and set aside money to pay your income tax in April.
- Visit the Career Center to update your resume, brush up on interview skills, and find part-time work on hiremizzoutigers.com.
- Continue to apply for scholarships through ScholarshipUniverse and on reputable scholarship search engines. See the Paying for College resources for additional scholarship tips.
- Decrease expenses: Review your non-essential categories and try some of these options.
Step 6: Commit to regularly checking in on your spending. Does it match your budget?
Adjust budget amounts and categories as spending patterns emerge or your needs change. If you overspend in one category, you’ll need to reduce the budget amount set in another.
Step 7: Dedicate 30-60 minutes per month to repeat steps 1-6.
Adjust methods, categories, and budget amounts as needed.
What is the best budgeting method?
Simply, one that works for you. If you are creating and following your budget, great! If not, try an alternative method to see if another one is easier for you to maintain. Budgeting is a commitment that may feel hard when you begin but gets easier and faster over time as you better understand your spending habits.
Financial Aid is refunded in a lump sum. How should I plan this in my budget?
- Set up a dedicated savings account for your financial aid refund (look for a high-yield account with no or low fees and no minimum balance requirement). Divide your refund by the number of months remaining in the semester. Set up a monthly auto-deposit of that amount into the bank account you use to pay for educational expenses (including housing, meals, and transportation expenses like gas and car insurance).
- Use this money solely for educational expenses. Avoid the temptation to fund lifestyle wants like vacations.
- Pay in advance for future educational expenses like rent and loan repayment or set aside for future tuition and supplies costs.
- If the refund is a result of scholarships and grants (not loans), you may incur some income tax due on the refunded amount. Set aside approximately 15% of this refund to prepare for taxes. Keep receipts of all educational expenses to reduce total tax owed.
How do I budget if I am paid twice a month or bi-weekly?
- Plot all bills and paychecks onto a monthly calendar
- Determine which bills will be paid by your first paycheck of the month and which will be paid by the second paycheck of the month
- Write a bi-weekly budget for paycheck 1
- Write a bi-weekly budget for paycheck 2
- If you are paid bi-weekly, there will be a few months when you’ll earn a third paycheck. Use these ‘extra’ paychecks to build an emergency fund, pay for future expenses in advance, pay down high-interest debt, or cushion your bank account for lower-income months.
How do I budget when my paycheck changes frequently?
- Determine the amount of income needed to pay for your monthly fixed expenses and needs (necessary bills, groceries, gas, phone, etc.).
- Estimate your lowest monthly income. Budget using this number.
- Subtract necessary expenses from your estimated income.
- Create a prioritized list of where each dollar above your estimated lowest monthly income will go.
- Income exceeds expenses?
- Dedicate a portion of each paycheck to build an emergency fund of at least $500
- Dedicate a portion of each paycheck to save up for future bills. Try to be one paycheck ahead of your expenses.
- Add wants and lifestyle spending to the budget.
- Expenses exceed income?
- Increase income or reduce expenses. See the tips above for ideas.
- Prioritize building a savings fund during higher pay periods to use during lower pay periods. Aim to save the amount needed to cover one month of expenses. Pull from this account when your pay doesn’t cover your bills, and replenish the savings as soon as you can.
What should I do if I have trouble sticking to a budget?
- Find a trusted accountability partner – family member or good friend – with whom you can discuss your spending habits. Make sure this person is “good with money,” not a carefree spender.
- Schedule a free 1-on-1 meeting with OFS to review your budget and make an action plan:
- Get to know your money personality so you can better understand your money behaviors and make plans to address unhelpful patterns. Meet with an OFS financial coach to complete a free money personality assessment or take a free money personality quiz online like this one.
- Identify your spending triggers. Proactively plan a few ways you can shift your behavior when you encounter those triggers.
- Consider removing your bank cards from your digital wallets to create friction to spending.
- Schedule a weekly money check-in with yourself. Review your spending from the previous week to bring awareness to spending patterns. Try over the next week to reduce spending in areas that don’t add value to your life