Creating, sticking to a budget: the process, the payoff


During your years as a college student, you will inevitably be faced with numerous challenges that you may not have ever faced in your life before. Stressors regarding your academics, health, social life and the idea of life after college can often pile up, leaving you feeling overwhelmed and unmotivated.

The biggest stressor, however, may just be financial disarray. After all, if you can’t pay your bills, you likely may not even be able to stay in school in the first place. In order to avoid this mess, you must come up with a strict budget and follow it.

You’ve probably heard this a thousand times before. We all know how important it is to come up with a system for your monetary situation, but how exactly is this done?

By following these simple steps, not only will you improve your current financial situation, but you will also be able to set future goals for long-term financial success.

1. Gather information and be aware of inflows and outflows
I can’t tell you how many times I’ve heard people say that they have no idea when or how much they get paid, when their bills are due or how much money they need to have available to pay those bills. Cash flow, which is basically how your money goes in and out of your possession, is extremely important because timing is important. Things like credit cards can give you more flexibility when it comes to cash flow, but eventually bills have to paid and you have to have money on hand to do that.

The first step of budgeting is understanding your current situation. If you don’t know it already, find out how much you get paid and how often, and find out when your regular expenses are incurred. This includes things like rent, groceries, bills for school, etc.

2. Make an itemized list of fixed and variable expenses
In order to really understand where your money goes and how to better allocate it, you have to have a good understanding of your required expenses and your arbitrary expenses. Rent, groceries and other bills are usually required expenses, while things like entertainment, eating out and alcohol are arbitrary, meaning not required.

Once you have created that list, you can start to compare how much money you spend on items that you have deemed that you need versus items that you have deemed unnecessary or luxury.

3. Prioritize
After you have created your itemized list of expenses, you can start to see how your money is allocated in regards to how much inflow, or income, you have. This will help you understand what is important to you.

For example, if you are spending more than half of your money on rent and your living condition is only moderately important to you, you may want to consider reallocating a portion of your money elsewhere.

Create budgeted allocations for yourself for things that you regularly spend money on and, ideally, create an allocation for saving as well. If you cannot save, make sure that at least all of your expenses are covered.

Creating target amounts for all of your expenses will give you a range for each expense that you regularly incur.

4. Follow up and compare actual versus budgeted expenses
There is no point in creating a budget if you don’t track and compare what you’ve budgeted versus what you’ve actually spent. In order for your budget to be effective in improving your spending habits, you must periodically update your accounts.

Each itemized expense will have its own allocation, and as you spend money, you will drain the amount available for each expense. This will give you a visual on how much you have spent and how much you have left to spend on each individual type of expense.

At the end of the month, you will be able to gauge how successful you were. Did you spend within your budget, or did you overspend?

Successful budgeting takes discipline, follow through and sometimes, sacrificing wants to make sure that you can cover your needs. Making it a habit, however, could be the best thing you do for yourself in the long run.

Andy Rao is a senior in finance. Send comments to