Your high school student will soon be away at college and on their own. One thing they must learn if they haven’t already is how to budget. Budgeting is a key pillar of being financially healthy. It is imperative that one knows where their money goes. The last thing you want is a phone call from your child asking for more money because they mismanaged the funds already earned or given to them. Setting a budget isn’t that difficult. The difficulty lies in sticking to it. As your child leaves the nest and enters into adulthood, it will be so easy for them to try and buy whatever they want because they now have the purchasing power. Also as parents we have bought everything for them, they may have no idea how much things cost nor do they know how to compare prices. I encourage you before your child moves away for college or embark on their own, sit down with them and work out a budget.
How to Start a Budget
The best place to start when creating a budget is simple pen and paper or (I like to use) an excel spreadsheet. First, you write down all your sources of income. For an upcoming college student this could be a part-time job, federal work-study, financial aid (if you are expecting a refund). Second, you write down all your expenses. This is money spent on a service or product such as rent, car payment, car insurance, cell phone, groceries, toiletries, entertainment, and so on. Your college student may or may not have that many expenses starting out, but it is still important to have a budget so they don’t spend all their money on pizza and movies.
After the sources of income and all expenses are on paper you will have to do a little math. Subtract your expenses from your income. What you want here is a positive number. That means there is money left over after all expenses are paid. If you have a negative number that means you do not have enough income to pay for all your expenses. What you will need to do is evaluate your expenses to see what can be cut or reduced.
Cutting cost may mean that you can’t buy a coffee from your favorite coffee shop every day, maybe you can only go to the movies once a month, or you can’t buy so many clothes and shoes. This is the concept of wants vs. needs. What you need is deodorant, not a mocha frappuccino. This would be a great time to categorize your expenses into wants vs. needs. Make a list of the things you absolutely have to have in order to live and function in life, this list will be your needs. Everything else will be on the list of wants. Let your child know that it is okay to go and do fun things but it is important that they make allowance for it in their budget. Otherwise they will run out of money. When you run out of money, expenses go unpaid, you begin living paycheck to paycheck, and your money begins to control you. This is something you want your child to prevent from happening to them.
Also not categorized under neither income nor expenses, is saving. You want to try and save back some money. Get into the habit of saving a certain percentage of each paycheck. Having savings will help when you have an unexpected expense, or you want to purchase a big ticket item. Setting aside money for giving is always a good idea too.
Once you have everything on paper and prioritized, you can create an active budget by using an app on your phone. Using a budgeting app can help you actively meet your budget goals and know where you are spending your money at all times.
Epic Budgeting Apps to Try Right Now
There are several budgeting apps and tools out there to help you manage your money. A budgeting app is essentially today’s version of balancing a checkbook. These apps track the what, when, and where of your purchases. Check out “The 8 Best Budgeting Apps to Download in 2018” from the balance.
Our family uses Mint created by intuit. I like this app because you can sync all your accounts and it updates your transactions in real-time. This app will automatically categorize your transactions. You also can add personal categories and set rules for certain transaction to be categorized a certain way. You can integrate your bills from various companies or add your bills manually to show what upcoming bills are due and what bills you have paid.
Another great feature is how the app tracks your budget. Once you create a budget in the app, it will track and alert you as to how close you are to your budget limit in whatever categories you have set. An example could be, you have set $60 a month for gas & fuel, so far this month you have spent $28 in gas & fuel. Mint will track your transactions, categorize these transactions as gas & fuel, and then inform you that you have $32 left in your gas & fuel budget for the month. You can also receive alerts and notifications of when you are coming close to your budget limits.
The Mint app will show you spending trends. It will show you how much you spent each month along with the transactions for each month. Knowing trends can help you reign in your spending in a certain area. An example would be a variable expense like food and dining. Because groceries isn’t a set bill like your cell phone, with the trend feature you can see how much money you have spent on groceries at any given time over a period of time. This can help with setting a grocery budget by looking over a certain period of time and finding the average monthly amount spent on food and dining.
As you can see our family is a big fan of the budget app Mint. However, what app you choose to use is whatever you are comfortable with and can get the most use out of it.
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I can’t say it enough, budgeting is crucial to having a financially healthy life. If you aren’t using a budget it is time you start. Knowing where your money goes not only will give you peace of mind but will also help you maintain control of your finances and build a better financial future. Creating a budget is easy but sticking to a budget can be challenging. In the end budgeting can be so rewarding. Do you use a budgeting app? Why do you like your budgeting app?
Do you use a budgeting app? Why do you like your budgeting app?