Why should students care about budgets and savings? Don’t we have enough things to worry about? Classes, exams, research… Now you want me to add budgeting into that? Forget it.
The problem is, the average American carries a total debt of $152,612 . About $6,900 of the total average debt accounts for credit card balances. 54% of college attendees took on student loans to fund their own education , with an average balance of $58,000 . If we break down the student loans by demographics, we find that Black college graduates have about $25,000 more in debt than White college graduates, women owe 58% of all student loan debt, and the average student loan debt is the highest amongst adults in their 30s and 40s . And the more education you want to pursue, the more debt you accrue: PhD holders have an average debt of $159,625 . That’s insane.
Not only that, about 39% of Americans could not cover an emergency expense of $400, and would need to put the expense on a credit card, or borrow money from family or friends. Amongst the most costly emergency expenses are health-related emergencies. About 24% of adults will forgo medical care because they are unable to pay for it, and the most frequently skipped treatment is dental care . I was one of those adults.
A Catalyst for Change
One day in 2013, I woke up with the most intense toothache I’ve ever felt. I tried to ignore it, because I was dealing with a student engineering project at the time, but it was freaking hard to ignore. Advil did nothing. Finally, I went to the dentist after signing up for a dental plan (no dental insurance for this broke student). Turns out, my filling was broken and my tooth was rotting. I had to get a root canal and a crown and it would cost about $500.
I checked my bank account. There was less than $100 in it. How the f* was I going to pay for this? And where did all my money go? It’s not like I made a lot of money from my part-time job, but my parents were helping me with an allowance, so I should have had more than a measly hundred bucks in my account.
Luckily, my boyfriend at the time (now husband) loaned me the money I needed for the dental procedure. I paid him back after a few weeks, but it was really embarrassing that I wasn’t able to pay for a medical emergency myself. Something needed to change.
Learning to Manage My Money
So I researched my options and found a budgeting software that was free for college students called You Need a Budget (YNAB), which was recommended by tons of personal finance enthusiasts on reddit. I signed up, and over time learned how to budget and save my money.
A few years later, I have a six month emergency fund, well-established retirement investment accounts, and we’ve funded many of our short- and long-term goals, such as paying for an immigration lawyer which is not cheap.
Listen, managing your money doesn’t sound exciting or fun. And we probably haven’t learned it in school or from our parents. But it’s not hard to learn, and it can be fun. College comes with so many challenges like student loans and finding a full-time job after graduation. Managing your money allows you to save up for an emergency fund so you can weather a few months of job searching if needed, without having to worry about being able to afford your rent or food, or pay off those loans before interest kicks in. This sets you up for success in the future.
Guide to Budgets and Savings
So how do we start a budget? Here’s a few steps to get started:
- List your income and necessary expenses such as rent, utilities, groceries, gas for your car, and debt payments.
- Check your monthly income vs expenses. Is your income larger than your expenses? Great! You now have extra cash to save towards your financial goals. But, if your expenses are larger than your income, it’s time to cut expenses down before moving on. Focus on big things like rent or mortgage, utilities, insurance, and food.
- Track your expenses. You can do this with paper and pen, in a spreadsheet, or using a budgeting app. I don’t care how you do it, as long as you do it. After 3 months or so, figure out your average spending in each category such as housing, food, utilities, and irregular things like car insurance, car registration, holiday spending.
- Make a budget with what you’ve learned in step 3. Try to list everything you can think of that you spend money on. This can be regular things like weekly grocery runs, or infrequent things like your car registration fee. We don’t want to have a surprise expense knock us off track, and we want to give “every dollar a job”, as the founder of YNAB would say.
- Reflect on your spending categories, and figure out what your money priorities are. Is your goal to have a 3 month emergency fund, or do you want to save up for a new bike? Calculate how much you will need to save each month to meet the goals’ due dates, and add that in your budget.
- Do you have debt payments? Time to make a plan to pay that down. There are many different ways to pay down debt, and Dave Ramsey has tons of tips on how to do that. This debt payment plan becomes a line in your budget, because we want to actively work to pay this down.
- When your paycheck comes in, you want to add this available money to your budget. Do not add more than the actual money you have available. This is so that we don’t spend more than we earn, and we don’t rack up any more debt. It’s also a good time to have a reality check of what you want vs what you can actually afford. Try your best to not spend over your budgeted amount.
- Prioritize wants vs needs. Rent, food, utilities, transportation, and health are needs. High-interest debt payment is a need, because we want to get rid of it! A new iPhone is a want. Assign money to your needs first, before tackling wants.
That’s all there is to budgeting and saving money. You’re now well on your way to having a healthier relationship with money.
There are tons of resources available online on personal finance and budgeting. Be sure to go the following blogs, books, workshops, and forums to learn even more about personal finance:
- Mr. Money Mustache
- YNAB workshops
- Dave Ramsey’s free tools
- Bogleheads’ forum
- The personal finance subreddit
- JL Collins blog and book on the Simple Path to Wealth
 2020 American Household Credit Card Debt Study. https://www.nerdwallet.com/blog/average-credit-card-debt-household/
 Student Loans and Other Education Debt, Federal Reserve System. https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-student-loans-and-other-education-debt.htm
 Average Graduate Student Loan Debt. https://educationdata.org/average-graduate-student-loan-debt
 Dealing with Unexpected Expenses. https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-dealing-with-unexpected-expenses.htm