Thursday, January 19, 2006

Why budgets don't work for college students:

A lot of financial advice columns and books will tell you that you need to have a budget in order to correct save and spend money. I think making a budget is a useless waste of time for a college student. The spending of someone in college is so random that most will find it hard to budget how much they will spend on food or clothing each week. Some weeks you get asked to go out to dinner with friends 5 times, others you might not be asked at all so you don't spend any money. Setting up a budget also takes quite a bit of time, and even though college students usually have plenty of time they are usually lazy when it comes to spending time on things that don't have instant benefits. So how can you prevent yourself from saving money if you don't budget exactly where you are going to spend it?

It's not very hard to do at all. You need to pay yourself before you pay anyone else. Every time you get paid, whether you have a steady job and you get paid every week or two, or you do random jobs here and there and might only get paid once a month or three times a week, give money to yourself before you give money to anyone else. Most college students do not have the option of contributing to any sort of retirement plan, so that means the government will be the first person to take your money when you get paid, through federal and state taxes along with social security. Now before you give anyone else money, the credit card company, the bank for your car loan, or the school for tuition, pay yourself!

You should take between 10 and 20 percent of each paycheck and put it into your high interest savings account. 10 percent is the absolute minimum you should take out of each paycheck. 15 percent is what you should be averaging each time you get paid; when you get paid more than usual put 20 percent away and when you are a little strapped for cash you only put away 10 percent. Never should you pay someone before yourself! No matter how strapped for cash you are, you need to ensure you pay yourself first! This way you will always be saving money before it all runs out.

Paying yourself first prevents what usually happens to people trying to save money. They say after I pay off my bills and buy everything I need to for the week I will put all of the rest of the money in my savings account. The problem is there is never money left over, or if there is, it's so little they say its not really worth saving. By paying yourself first you prevent yourself from spending that extra money you don't need to spend. This is kind of like budgeting, except instead of suggesting to yourself how much you should spend on stuff each month it actually controls it. Try this for a few months and I think you will be amazed at how much you save!


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