College teaches you a great many lessons. Not all of those lessons, as it happens, are learnt in the classroom. As a young college student, budgeting and good financial planning are lessons you will learn to appreciate sooner rather than later. This is especially true if you are planning on moving abroad for your studies.
The expenses of a global education may have you worried and asking “Is studying abroad worth it?” Well, there is no doubt that going to study abroad has a great many benefits, both for your career as well as your personal growth and development.
In fact, learning how to live on a tight budget can be a life lesson on its own. In this blog post, we try to understand how to get started in creating your first personal budget.
Basics of Financial Planning
When you are preparing for your college applications, it is likely that you have an education plan in place. This ensures that you are more organised with your applications and aren’t surprised or thrown into a tizzy due to unexpected circumstances.
In the same way, to ensure that you are organised with your money and to avoid being beset by financial emergencies, you need a financial plan.
What is Financial Planning?
Financial planning is basically a method to plan and manage your income, expenses, investment and other finances to ensure that you can achieve your life goals. A good financial plan also anticipates and makes room for emergencies that may otherwise drain your savings or cause you to incur debt.
What is the First Step in Creating a Financial Plan?
The first step in creating a good financial plan is the same as the first step in creating a good education plan – identify your goals. You need to figure out what your financial goals are. They can be as simple as being able to save a certain amount at the end of the year.
Be realistic with your goals. Keep in mind that you are still young and do not have too many responsibilities right now. Therefore, you can treat your college life as a growing and earning period.
You don’t have to put too much pressure on yourself.
Understanding & Tracking Your Finances
Once you have your financial goals in place, you can start sketching out your plans. Understand your finances. Figure out how much money is coming in each month, (through education loans, scholarships, part-time jobs or your parents) and how much of it you are spending. Figure out which expenses are reasonable or non-negotiable and which ones you can cut down.
You should also maintain a personal balance sheet to record how much you have, how much you spend and how much you owe. Collect all bills, invoices and bank statements to accurately record all your transactions. This will enable you to understand and track where your money comes from and where it goes.
How to Create Your First Budget?
Once you have a financial plan in place, creating a budget will be easy. A budget is a summary of estimated income, and discretionary & non-discretionary expenses. Budgets help you figure out where your money is coming from and where it should be going. This enables you to spend and save money more wisely. Budgets are especially important when you study abroad and away from family support during emergencies.
If you have done your financial planning and tracking properly, your personal balance sheet will be your first step to creating your first monthly budget. Next, follow these simple steps –
- Calculate your monthly income based on this balance sheet. Your income will include all money that you earn through part-time jobs and scholarships as well as any allowances you get from your parents or through an education loan.
- Make a list of your monthly expenses. This list should include all your fixed as well as variable expenses including tuition, rent, utility bills, food, transport, entertainment, etc.
- Next, separate the non-discretionary expenses like rent and utility bills from discretionary expenses like entertainment.
- Set aside money for non-discretionary expenses as a priority. This is money you are not allowed to touch for anything other than its designated purpose.
- Set aside money for savings and emergency funds. You don’t have to save a huge amount but do try to keep aside at least some money for this every month.
- Make any adjustments that may be required. Cut expenses where possible and adjust savings where no other options are left.
And voila! Just like that you have your first budget!
Good Monetary Habits
Good monetary habits teach you financial responsibility and maturity. When you study abroad, you do not always have your family to rely on during emergencies. By practicing these, you ensure that you do not end up in sudden financial emergencies that cause you to incur debt.
Financial planning and budgeting are some good monetary habits. Another such important habit is avoiding unnecessary expenses. Avoid buying expensive clothes or gadgets that you don’t need. Avail student discounts wherever possible. Use the library. Use public transport. Save money wherever you can.
Pay off your debts. Try not to buy anything on credit or borrow money unnecessarily from your friends. Only buy what you can reasonably afford. Saving money may involve sacrifices. You may have to cancel a trip with your friends or miss out on going to an expensive restaurant.
Keep in mind there will always be time for those things. By planning for the long term instead of focusing on short term pleasures, you are making sure that you enter your working life on solid financial ground.
Pay your bills early and on time. Not being prompt with your payments causes you to accumulate late fees which can easily drain your resources and unbalance your budget.
Another important monetary habit to build when you study abroad is to always have an emergency fund. This fund can help you pay sudden expenses, like if you lose your phone or if your laptop needs repair.
Financial planning is the first step towards financial responsibility and eventual financial independence. Your parents were able to send you to your dream college because they were fiscally responsible, saved money and invested in child investment schemes to ensure the best future for you. The best way you can pay them back is by learning to be financially responsible yourself.
Your attitude matters. If you are not resolute about sticking to your budget, your financial planning will be futile. No financial goal is as difficult as it seems once you have your personal balance sheets and budgets in place. Welcome to adulthood!