Budgeting is simply the act of working out how much money you’ve got coming in (EARNINGS) and then as accurately as possible figuring out how much you have to pay out (EXPENSES) on fixed costs such as rent, bills and so on to then come up with how much you’ve got left to spend on everything else (DISPOSABLE FUNDS/INCOME).
In simple math terms basic budgeting looks like this:
INCOME + FIXED COSTS = DISPOSABLE INCOME
Budgets can be calculated over a variety of time periods, such as a month, term or even a whole year. Most students have very fixed incomes made up from their Maintenance Loan or Grant, plus whatever they may get in the way of parental support or from a part-time job, so calculating income is usually pretty easy.
The trick comes when trying to figure out your expenses, breaking it down into the fixed costs that are known (for example rent is a ‘known fixed cost’), those fixed costs that are estimated (such as utility bills which can be guessed at based on how much was paid in the previous year) and then essential costs but based on educated guesswork. How much you are going to spend on food per month would be an example of an essential cost.
It’s also important to be strict with yourself about what are and what are not ‘essential’ costs. Whatever is left over after covering your essential costs what you are going to have left to pay for everything else.
Everyone is different, the important thing is to take full stock of your personal income and expenditure – being as honest as possible – and seeing if it leaves you with any money left over. If it does then it’s a case of making that remaining disposable income last (i.e. not overspending). However if after drawing up your budget you have more money going out than you have coming in then you only have two responsible alternatives: You can –
- Increase your income.
- Reduce your expenditure.
It can be difficult to track the small daily expenses (such as cups of coffee, sandwiches, car parking and so on) so here are a couple of tips to help.
1) Pay cash: Debit cards are very easy to use for even small purchases nowadays and you can spend money on them without ever really noticing the total impact on your bank balance. So take out a fixed lump sum of cash each week and commit to only using that cash for your ‘impulse’ spends on a day to day basis. You’ll realize how quickly you’re burning through your disposable income!
2) Cut back: Why pay for coffee when you’ve got a thermos flask or for sandwiches from a shop when you can take in a packed lunch? The simplest way to manage impulse spending is to stop it altogether or reduce it to an absolute minimum. Changing habits can be challenging but the savings can be rewarding.