64 Budgeting and Saving

David Evans


What you’ll learn to do: explore strategies for budgeting and saving while in college

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A budget is telling your money where to go instead of wondering where it went.

—Dave Ramsey, financial author

By the end of this section, you will be able to describe budgeting strategies and the pros and cons of budgeting. You will identify the steps necessary to create a personal budget and explore factors in financial savings for college students.

Budgeting Strategies

Learning Outcomes

  • Describe budgeting strategies and the pros and cons of budgeting


The term budget is unpleasant to some people because it just looks like work. But who will care more about your money than you do? We all want to know if we have enough money to pay our bills, travel, get an education, buy a car, etc. Technically, a budget is a specific financial plan for a specified time. Budgets have three elements: income, saving and investing, and expenses.

When you receive income, you ask yourself "Where to put my income?" They two choices available are Savings & Investing, and Expenses
A budget is a specific financial plan for a finite amount of time. For example, you can set a budget for your family for a year.


Income most often comes from our jobs in the form of a paper or electronic paycheck. When listing your income for your monthly budget, you should use your net pay, also called your disposable income. It is the only money you can use to pay bills. If you currently have a job, look at the pay stub or statement. You will find gross pay, then some money deducted for a variety of taxes, leaving a smaller amount—your net pay. Sometimes you have the opportunity to have some other, optional deductions taken from your paycheck before you get your net pay. Examples of optional deductions include 401(k) or health insurance payments. You can change these amounts, but you should still use your net pay when considering your budget.

Some individuals receive disability income, social security income, investment income, alimony, child support, and other forms of payment on a regular basis. All of these go under income. During school, you may receive support from family that could be considered income. You may also receive scholarships, grants, or student loan money.

Saving and Investing

The first bill you should pay is to yourself. You owe yourself today and tomorrow. That means you should set aside a certain amount of money for savings and investments, before paying bills and making discretionary, or optional, purchases. Savings can be for an emergency fund or for short-term goals such as an education, a wedding, travel, or a car. Investing by putting your money into stocks, bonds, or real estate offers higher returns at a higher risk than money saved in a bank. Investments include retirement accounts that can be automatically funded with money deducted from your paycheck. Automatic payroll deductions are an effective way to save money before you can get your hands on it. Setting saving as a priority assures that you will work to make the payment to yourself as hard as you work to make your car or housing payment. The money you pay toward saving or investing will earn you back your money, plus some interest. Compare these investment earnings to the cost of buying an item on credit and paying your money plus interest to a creditor. Paying yourself first is a habit that pays off!

Pay yourself first! Put something in savings from every paycheck or gift.

Categorizing Expenses

Expenses are categorized in two ways. One method separates them into fixed expenses and variable expenses. Rent, insurance costs, and utilities (power, water, gas, etc.) are fixed: they cost about the same every month and are predictable based on your arrangement with the provider. Variable expenses, on the other hand, change based on your priorities and available funds; they include groceries, restaurants, cell phone plans, gas, clothing, and so on. You have a good degree of control over your variable expenses. You can begin organizing your expenses by categorizing each one as either fixed or variable.

A second way to categorize expenses is to identify them as either needs or wants. Your needs come first: food, basic clothing, safe housing, medical care, and water. Your wants come afterward, if you can afford them while sticking to a savings plan. Wants may include meals at a restaurant, designer clothes, video games, other forms of entertainment, or a new car. After you identify an item as a need or want, you must exercise self-control to avoid caving to your desire for too many wants.

Without a personal budget, most people have a hard time gauging how much money they spend and where their money goes. If you have ever gone to an ATM to withdraw money and been surprised to discover how little you had left in your account, this section is for you. It’s also for anyone who wants to learn how to manage their money better and smarter—which is an invaluable skill to have not only during the penny-pinching years of college but also later on in life.

Categorize your Expenses

List the last ten purchases you made, and place each of them in the category you think is correct (Fixed and Variable, or Need and Want).

people at a concession stand
Even though you might find the need to cut the number of times you go to the movies each month, effective budgets still factor in leisure activities.

Budgeting Strategies

Even if you’re very conscientious about paying your bills on time and generally have frugal spending habits, creating and following a budget can put you so much further ahead. In essence, a budget is a plan for how you want to spend money. It details how much money comes in each month and how much you’ve allocated for spending on each thing. The virtue of a budget is that it puts you in control of financial decisions—so you can avoid surprises at the ATM or at the end of the month. Let’s look at some strategies for creating a budget:

  • Be realistic: People are often intimidated by budgets because they’re afraid the plans will be too strict or force them to cut back too much. Though a budget may reveal that you indeed spend a lot of money on clothes, that’s okay—it may just also need to show that you spend very little on restaurants and eating out to make up for it. Again, it’s about making choices and being realistic.
  • Choose a timeline: Creating a budget for a fixed period of time will help you monitor whether you’re meeting your financial goals. The timeline you choose is up to you and your goals. For example, you might create a monthly budget to monitor how you spend your paycheck every month.
  • Add financial padding: Even if you feel like your list of financial obligations is already long, try to set aside a certain amount each month for a rainy day fund to pay for unforeseen expenses and emergencies, like car repair, lost textbooks, etc.
  • Make adjustments as needed: While sticking to your budget is important, there’s nothing wrong with revisiting and adjusting your original targets. For example, if you find that you are actually spending $50 more per month on groceries than you intended (even after shopping for sale items), you may decide to save that money elsewhere in your budget next month—on entertainment, for example.

Pros and Cons of Budgeting

While budgeting can be a useful financial tool, it may not be for everybody. Some people may feel more confident by balancing their checkbook to see how much they have at any given time. Still, many argue that budgeting helps people stay on track and avoid overspending on wants such as restaurant food, clothes, and entertainment, so they always have enough money for needs, such as rent/mortgage, utilities, and food. The following lists summarize the advantages and disadvantages of budgeting.

Budgeting Pros

  • Provides a realistic view of personal finances: A personal budget provides an honest snapshot of how much money you make and how much you can spend. It can help you avoid deceptive financial thinking, such as believing that you’re flush right after pay day when you really need to save that money for an upcoming bill.
  • Helps you avoid excess spending: Because a budget gives you insight into the total picture of your income and expenses, you can make realistic decisions about spending. As above, a budget can help you avoid having a faulty sense of your financial resources and remind you that even if you just got paid, most, if not all, of your check may need to go toward fixed expenses.
  • Assists in goal setting: Since you get to decide how to allocate your money, a budget can help you set goals. For example, if you create a yearly budget, you could plan and account for an upcoming family trip and start saving money for it in advance without worrying about having the money at the last minute.

Budgeting Cons

  • Budgets take energy: Planning a budget takes dedication. Since most students lead busy lives and are balancing different demands like work, school, and time with family and friends, it can be easy to slip up. For example, if you have a stressful week at work or school, you might overspend while going out with friends and forget how much you budgeted for leisure activities.
  • Results take time: Since most budgets cover a time period of a month, year, or even longer, people may become frustrated waiting to see if their financial situation is better than it was before. Frustration can lead people to abandon their budget and go back to overspending or neglecting to save.
  • Budgets may be strict: Remember that one of the important strategies for creating a successful budget is earmarking money for treats and extras such as entertainment. However, in an effort to become more financially disciplined, some people make budgets that are too restrictive and unrealistic. Severe budgets can backfire and lead to overspending in one area or abandoning the budget altogether.

Creating a Personal Budget

Learning Outcomes

  • Identify the steps necessary to create a personal budget

Even though you may be persuaded by the downsides of budgeting and think, “It’s not for me!” don’t give up until you’ve tried it. Tracking one’s income and spending is a good exercise for anyone, and if you follow the basic process below, it’s easier than you think.

  • Calculate regular expenses: Using your bills, receipts, checkbook, and any other financial records you have, make a list of your regular expenses and record how much you typically pay each month or year. Since some expenses like grocery bills may vary from month to month, you’ll want to examine several months’ worth of receipts to come up with an average.
  • Record your income: Identify all income sources and add up how much you receive during a given period of time. This amount should include all sources of money—from regular full- or part-time work and from intermittent sources, such as freelance jobs, babysitting, etc.
  • Adjust your expense percentages, and set goals: After you outline your financial obligations and income, you can start deciding how much money you’d like to allocate for each expense. Start with fixed expenses such as rent, car payments, etc. Next, decide how much you want to devote to each of the remaining categories, such as food and entertainment. At this point you can also set specific financial goals. For example, you may decide to lower the amount you spend on clothes in order to pay off outstanding credit-card debt or save for a trip.
  • Identify a method for tracking your budget: Develop a plan for monitoring your budget. You might decide to use an Excel or Google spreadsheet, a budgeting app, or a budget tracking tool provided by your bank. You can also write things down in a notebook. The method doesn’t matter, so long as it’s easy for you to access, use, and interpret.

How much money should you set aside?

The best way to figure out how much to budget for unexpected expenses is to list all the unplanned expenses you had last year, plus ones you can predict are coming soon. For example, you might predict that if you have a dog, he will have to visit the veterinarian at least twice a year for unexpected reasons. Make a list of all unexpected expenses, then estimate how much money you should have set aside for the year. Take your total and divide it by twelve and set this much aside each month. It might take you a while to get enough money set aside. Keep working on saving, and don’t give up if you don’t always meet your target each month.

Budgeting Apps

You can write down your budget on paper, use a computer spreadsheet program such as Excel, or you can find popular budgeting apps that work for you.[1] Some apps link to your accounts and offer other services such as tracking credit cards and your credit score. The key is to find an app that does what you need and use it. Here are some examples:

The Envelope Method

Still not convinced that making and following a budget is doable? The following video describes a budgeting technique that’s very easy and straightforward to follow: the “Envelope Budget.” Simply placing cash in labeled envelopes (one for each category or purpose) each month can be a very effective means of building healthy spending habits.

Savings Strategies

Learning Outcomes

  • Explore factors in financial savings for college students

Spending Hazards

Lots of students work hard and manage to cover the cost of attending college, but plenty find that they don’t have a lot left over for other important things, like housing and food. The idea of actually saving money—for things like clothes, entertainment, or other extras—may seem completely out of reach. In this section, we challenge you to take a chance and try. You may be surprised to find that you can change your spending habits, gain better control over your finances, and wind up with money in the bank. Below are some common hazards you can avoid and tips to get you started:

  • New spending responsibilities: If you’re starting college right out of high school, this may be the first time you’ve had your own checking account or received regular income from a job. It may be tempting to spend what’s left over after you pay for big items like tuition and books, forgetting that you still have other expenses. Even if you don’t spend a lot of money on extras, you may not be aware of strategies for saving money, such as keeping an eye out for coupons and sales.
  • Using credit cards: Young college students are often targeted by credit card companies because they have comparatively few financial responsibilities and generally have clean credit records. Owning and using a credit card can be an effective way to build a credit history and it can also be useful in an emergency, but credit cards do carry significant risk: if you don’t pay them off in full every month, they accrue interest—sometimes at a very high rate—and the total amount you owe can become an enormous financial burden.
  • Neglecting to pursue scholarships: Many college students are either unaware of scholarships they qualify for or they just don’t follow through and apply. Take advantage of the financial aid office at your college. Ask questions and get help finding out what’s available to you. You may be passing up an opportunity to get money for tuition, room and board, and books.
  • Recreational activities: Unlike high school students, college students don’t generally have classes all day, so they may find themselves with hours of free time. To fill that time, they may want to go to places like restaurants, movies, and shopping centers. These activities add up fast and cost more money than eating on campus with a room-and-board plan or cooking meals and socializing at home.[2]
  • Not realizing you’re paying for something: This can happen with monthly subscription to services you don’t need or use, or it can be a fee you pay to your bank to have a checking account. There are many areas where you might be paying for something when you could get a free version or cancel your digital subscriptions you’ve forgotten about.

Small Savings

Can you identify areas in your life where you are losing money by paying fees on your checking account or interest on your loans? What actions could you take to stop giving away money and instead set yourself up to start earning money?

Saving Strategies

Whether you are starting college as a single eighteen-year-old or you are older, working, and raising a family, there’s a set of basic financial strategies that can help you lower your expenses and save money while you’re in school. Analyzing your spending habits (as you just did) is the first step. Next, you can try the following:

  • Create a detailed budget: Budgets will enable you to treat yourself while avoiding overspending. For example, you might allot $50 a month for going out with friends. If you’ve already spent $50, you should find alternative recreational activities for the rest of the month so you don’t have to borrow money that you set aside for other expenses.
  • Cut down on meal costs: Looking for deals and using coupons at grocery stores will save more money than eating out. Students living in dorms may not have a lot of space and supplies for cooking, but they may still have room for a refrigerator and coffee maker to avoid overspending on snacks and trips to Starbuck’s. Those with adequate space should look to buy in bulk as the per unit cost is cheaper. Sam’s Club, BJ’s and Costco are prime examples of stores that give these options.
  • Save on transportation: Cut down on the cost of gas (or get rid of your car altogether) by walking to class, riding a bike, or using public transportation. Check to see whether your college offers free or reduced-price student bus/train passes.
  • Look for discounts and used items: As long as a textbook isn’t outdated, you can often purchase used or discounted copies online or from other students. Need to furnish a dorm room or off-campus apartment? You’ll save a lot of money by borrowing household goods from friends and family or by purchasing them from secondhand stores.
  • Apply for scholarships and minimize loans: To repeat, scholarships don’t have to be repaid, and they don’t rack up interest. Do your best to apply for everything and anything that you qualify for, scholarship-wise. Winning a scholarship can have a big impact on your budget and financial health.

Eight tips for saving money

Check out this video for eight actionable tips for saving money while you’re in school.

Remember the Big Picture

When you think about becoming more financially secure, you’re usually considering your net worth, or the total measure of your wealth. Earnings, savings, and investments build up your assets—that is, the valuable things you own. Borrowed money, or debt, increases your liabilities, or what you owe. If you subtract what you owe from what you own, the result is your net worth. Your goal is to own more than you owe.

Assets (Owned) – Liabilities (Owed) = Net Worth

When people first get out of college and have student debt, they often owe more than they own. But over time and with good financial strategies, they can reverse that situation. You can track information about your assets, liabilities, and net worth on a balance sheet or part of a personal financial statement. This information will be required to get a home loan or other types of loans. For your net worth to grow in a positive direction, you must increase your assets and decrease your liabilities over time.

Everything you need to know about savings

This video is part of a series called “The College Student’s Guide to Money” and it outlines even more information about different types of savings accounts and what they are for, including emergency savings and retirement savings.


budget: a specific financial plan for a specified time, consisting of three elements: income, saving and investing, and expenses

gross pay: the larger paycheck amount that is listed on your pay stub prior to deductions for taxes

net pay: the smaller paycheck amount that remains after taxes and other deductions; this is the number you should use to plan a budget

net worth: the total measure of one’s wealth, calculated by subtracting what one owes (liabilities) from what one owns (assets)


  1. See www.techtimes.com/articles/80726/20150902/best-budgeting-apps-for-college-students-mint-you-need-a-budget-and-more.htm for some good
  2. Reaume, Amanda. "6 Common Money Mistakes College Freshmen Make." Yahoo! Life, 4 Sept 2015, www.yahoo.com/lifestyle/s/6-common-money-mistakes-college-110010808.html.


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Budgeting and Saving Copyright © 2023 by David Evans is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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