Budgeting – You hear the term used often and you know you should be doing it but why? We’re here to get you thinking about budgeting so that you can start to make smarter financial decisions. For starters, we answer the question, “Why budget?”
Prioritize Your Expenses
A budget lets you know what you can spend and when you can spend it. Preparing a budget forces you to consider your expenses in light of your income, and to make rational decisions about how best to spend what you have. It helps you distinguish between your “needs” and your “wants” and allows you to set short, medium, and long term goals. Having a budget and sticking to it will ensure your most important expenses, such as rent, groceries, medical/dental bills, laundry, textbooks, and tuition fees, get paid before those that are less important, like entertainment, the latest gadget, and eating out. In short, it will help you prioritize your expenses.
Stretch Your Resources
As a student, budgeting will also help you plan how you will stretch resources like financial aid funding (e.g. OSAP) over the entire academic year. Remember, income streams like government grants and student loans are paid out on a fixed schedule, usually once or twice a year. Without a plan, it is all too easy to run out of funding before your final exams are behind you. Sticking to your budget will ensure you live within your means and avoid taking on unnecessary debt. Monitoring your spending habits will deter you from making impulsive or expensive purchases of items you do not need, and cannot afford.
Prioritizing your expenses and choosing the best ways to stretch your resources are really both means to the ultimate end, and the single-most compelling reason to get into a lifelong habit of budgeting. The real answer to the question “Why should I budget?” is, “Because it will make your life way less stressful!” Preparing and sticking to a budget eliminates the stress that always accompanies poor financial management. And as a student, reducing your financial stress will allow you to put more time and energy into your studies; significantly more.
Building Your Budget
Sold? Good. Next let’s talk about how to budget! There are lots of resources available online that will help you design and build a budget, and many that are geared specifically to students. Starting with the following 5-step process will get you on your way.
1 – Review your expenses
Keep track of how, why, and when you spend your money over one month. Tracking your expenses helps you to understand your spending habits.
- Sign up for online banking so that you can keep an eye on where your money is going
- When using cash, ask for receipts
- Don’t forget to count the little things like coffee runs, they add up!
- Have a realistic idea of what your academic expenses are going to look like, check out our Calculating your Expenses page
2 – Prioritize your expenses
Take a look at your fixed expenses (e.g. tuition, rent) versus your variable expenses (e.g. clothing, groceries) to see where you might be able to adjust or cut costs if need be. Most likely, there is not much you can do about your fixed expenses, however, your variable expenses offer up some flexibility.
Assess your needs versus wants when trying to figure out where you can save money and/or avoid accumulating unnecessary debt.
Some tips for cutting back:
- Use your student discount card
- If you are an impulse buyer, avoid or limit trips to the mall and online buying sites
- Leave your credit card at home and use cash when paying for items; cash is harder to part with than swiping a credit or debit card
- Call up your service providers (i.e. cell phone, internet, cable) to see if there is a way you can trim your expenses
- Bring your lunch from home
- Use your campus gym access rather than paying for another membership elsewhere
- If I buy this item now, will I have enough money for stuff I might need or want later this week, or later this month?
- Will buying this item interfere with paying off debt?
- Do I have the extra cash right now to buy this item or can I wait to buy it so that I can save for it?
- Do I really need this item?
3 – Review your resources
Resources for funding your post-secondary experience do not rely solely on your income. There are various sources of funding to consider when planning to pay for your tuition, textbooks, and living costs. Consider:
- Ontario Student Assistance Program (OSAP)
- Bursaries, Grants (i.e. 30% off Ontario Tuition Grant), and Scholarships
- Parental/Family Assistance
- Summer Employment
- Part-time Employment
- Registered Education Savings Plan (RESP)
- Co-operative Education Program Earnings
- Student Lines of Credit
Remember, when borrowing, only borrow what you need! There is a difference between good debt and bad debt. Good debt is used to make things happen that have a higher value than the total debt, such as getting an education. Bad debt is when credit is used to buy things that have no benefit beyond immediate or near-term enjoyment – something to keep in mind! A government-backed student loan which charges you no interest while you are in school, and offers a flexible repayment schedule at relatively low interest rates, is an example of a good debt; carrying a balance on a high interest credit card while you are in school is a terrible form of debt.
4 – Balance your budget
There are only two ways to balance a budget: you can make more money, or you can spend less of it. As a student, it is far easier and more advisable to reduce your spending where possible than it is to increase your income beyond a certain point. Not only is cutting your costs (especially discretionary costs—your “wants”) easier than taking on a job to earn more money, it doesn’t rob you of valuable hours better spent focusing on your studies.
Some tips to cut discretionary expenses (your “wants”) or increase resources:
- Make your coffee, hot chocolate, or tea at home
- Watch a movie at home rather than at the theatres
- Consider having one or more roommates to help cut the cost of rent
- Sell any unused items such as old textbooks on Kijiji
- Seek out a part-time job that only requires a few hours a week but remember to make school your first priority!
5 – Commit
The most important step to ensure that you meet your budgeting goals is to commit! This will mean re-evaluating your budget every few months to ensure that you are on track. As you make your way to your goals, remember to celebrate your achievements, large and small! Giving yourself credit for achievements will help keep you motivated to stick to the plan.
- Make a plan with your eyes wide open, consider as many possibilities or potential disruptions to your plan, have a plan as to how you will overcome potential obstacles
- Set goal dates and re-evaluate half-way through to see if you are on track; if you are not, adjust accordingly
- Welcome your mistakes and learn from them, do not get discouraged and give up!
- Seek advice from other “budgeters”. Ask your parents for advice, your peers; or make an appointment with a financial aid administrator at the Awards Office.
Helpful tip for the future: Debt isn’t always a bad thing. When you take out a loan or use a credit card and make your payments in full and on time, you are establishing a good credit rating. This is a valuable thing to have when it comes to buying a car, qualifying for a mortgage, or taking a loan out for your post-graduation business idea. This tells your potential creditors that you can be trusted to repay what they lend.