Uni life taking its toll? If you seem chronically short of cash and struggling to pay for rent or groceries each week, you need a budget. A student’s finances won’t be princely sums to begin with, especially since we can’t work full-time amid our studies; but we can make our student finances stretch a bit further with some clever budgeting and some other financial tips.
Debt isn’t always bad: student loans for investing in yourself
If you have debts, it’s always good to pay them off as fast as you can. If you have massive credit card debts, this can spiral out of control rather quickly. However not all debt is bad debt. If you are going into debt to invest in yourself, as Managing Director of Savvy Bill Tsouvalas says, this will end up paying for itself – hopefully many times over. “Though we’re wary of taking out a student loan, this can actually help us think of ourselves as investments,” he says. “If we’re buying a car that allows us to travel to a job or seek out better internship opportunities, then that’s a good debt. If we’re just spending it to have a holiday, that’s bad debt. It’s money we can’t ever get back. Getting an education loan to improve job opportunities and earning potential is an investment in time and money; but it will pay dividends.”
What is a budget? How can it help?
We’ve probably heard about a budget in terms of politics (the National Budget) or in business but we haven’t applied it to ourselves. A budget is a way of accounting for our money (the basis of the subject, accounting!) so every dollar in is allocated, or at least, close enough to that. Budgeting can help control our spending by putting limits on certain areas such as meals and entertainment and helping us to save or pay down debts. It not only helps control our finances but can help us plan ahead and give us greater peace of mind.
The traditional budget method: spreadsheets and categories
The traditional budget method is to look at your income and expenses and allocate money between categories in terms of priority. Your income may vary from month to month, but you can set a baseline that allows you to forecast what you can expect. You can even roll over unused money from the last month in case there is a shortfall.
You need to tally up your expenses from the last few months and see how much you are spending in each category, be it transport, rent, groceries, utilities, entertainment, etc. In some categories, such as entertainment or meals, you want to reduce how much you spend and allocate the money elsewhere, say to savings or debt reduction.
The New Method – using “buckets”
The New Method is much more simplified and focuses on long-term wealth and personal growth. Spearheaded by Scott Pape, author of The Barefoot Investor, this pools your money into “buckets” – the daily expense bucket, which covers most of the categories with a bit of a buffer for splurging; the “safety” bucket for emergencies, and a “growth” bucket for long-term wealth and security. The Bucket Method also looks at “dominoing your debts” – paying off the smallest debt first and working your way up. This means paying back that $10 you borrowed at the pub last night!
Using your Netbank apps to achieve spending limits
You can set up your NetBank apps to track spending in each category; some apps may also forecast bills as they come in, so you know exactly how much you’ll need to cover them each month. Most NetBank applications need to be “trained”; though some will figure out you’re spending on groceries if it sees Coles/Woolworths/IGA in the transaction description. This can give you a visual breakdown of how much you’re spending, and where.
See a financial adviser
If you’re at TAFE or university, chances are you can see a financial adviser or counsellor for free on campus. Your student union may point you in the right direction. An adviser can help you set up your budget, formulate a debt reduction strategy, and see if you are effectively investing in yourself. “A great financial adviser can set you up for wealth now and into the future,” Tsouvalas says. “The quicker you start, the better the outcomes will be in the future.”