When we think about sending off our students to college, thoughts of money undoubtedly pop up – even when trying not to cry while dorm shopping for perfectly sized twin sheets. As all the excitement, pride, and worries surface, you may wonder if your child is ready to navigate their own financial situation while they are away. The best place to start is making sure they understand the basics – step one: budgeting.
The idea of a budget may or may not incite joy and excitement, but the ability to follow a budget will help set them up for future financial success when they land their dream (or first!) job. When helping your student create their college budget, it is important that it makes sense and that you both buy-in to it. If not, it is about as good as used tape.
If you are providing financial help to your student, it is necessary to sit down with them and make sure they understand your boundaries. Will you pay for tuition, a meal plan, and housing costs only? Will they need to pay for their own cell phone bill, food off-campus, and gas? Do you have stipulations attached like maintaining a certain GPA or holding a part-time job? The more open and honest this conversation is, the more confident everyone will be in the budget plan you are creating. Here is how to start:
Step 1: Pick a budgeting period for College Budgeting
The most common is monthly, but it may make more sense to zoom out to look at the semester as a whole. This applies especially if your student is on financial aid (scholarships, grants, or loans). Because students are likely to receive their funding at the beginning of the semester, planning around this timeline is important to your budget planning.
Step 2: Track those habits!
No matter what budgeting period you land on, the student should track their expenses for at least the first couple of months. Then make necessary adjustments, so your student will end up with a solid, reliable budget to follow.
While the prospect of sending your student off with a checkbook and a ledger to track spending every day might make you chuckle, and would definitely “build character”, there are a multitude of free budget worksheets, budgeting apps, and online banking services that will do the trick.
Step 3: Identify sources of income and their timing
Income sources for college students can vary, such as financial aid, pay from work, or financial help from family. It is important for students to know how much they will be receiving and when, so that they are not eating ramen for the last week of the month, or worse yet, they cannot pay a bill.
If you have opted to hand over a credit card for expenses, it is important that your student understands the responsibility and trust they are receiving. Credit cards can be an extremely useful tool and building good credit while they are in school can help them down the line. However, education goes a long way. Not just the lesson that pizza is not an emergency, but about the FICO score, interest, and building sustainable spending habits. Consider including your student in the process – send them a copy of their bill or run their credit report with them so they can see the big picture. You should also set expectations regarding whether and how you intend to monitor their credit card activity.
Lastly, if your student is receiving financial aid through scholarships, loans, or grants – make sure you and your student are clear on what the dollars can and cannot be used for. While “living expenses” are broad, some scholarships may have stricter regulations.
Step 4: Identify expenses
Once everyone is clear about income it is time to focus on expenses. This is where you can help your student start understanding wants versus needs. Start with what gets taken care of first – basic living expenses. Even if you are paying for the big stuff, help your student think through things like personal care costs, membership dues for organizations they are in, and transportation costs.
If your student receives financial aid, they may have a large sum of money deposited into their designated bank account after their tuition and fees are deducted. It is important for them to understand that those dollars need to stretch the entire semester. Consider paying bills upfront for the entire semester and/or segregating the lump sum in a savings account and setting up periodic transfers. This will cut down on the amount that is in their checking account, so they are not tempted to overspend. It may also give you both peace of mind that they will not be coming to you in May or December with bills that must be paid.
After basic expenses are deducted, what is left? It is critical that students are honest with themselves, especially if they have been in college for a while. If they know the late-night study ritual starts with a trip to the convenience store, or that they always have their dinner during happy hour – they should account for those things in their budget, and then put a limit on what they can spend in that category guilt-free.
Step 5: Put a Realistic Savings Goal in Place
This is also a great time to challenge your student to set some savings goals. Maybe they want to take a trip with friends for spring break or are thinking about traveling abroad. Setting financial goals is a fast-track way to help students keep their spending in check, and achieving those goals builds their confidence that maybe financial awareness is not all that bad.
No matter what financial situation you and your student are looking at – let them know that help is available. Even if you do not feel particularly qualified to help your student with their budget, most college campuses offer personal finance courses. Some colleges even have non-profit organizations on campus that will help your student learn more about budgeting, credit, and other financial literacy topics.
Regardless of how much you are contributing to your student financially – your advice and encouragement are invaluable assets you must give as well. Yes, your thank you may be masked with an eye-roll or a deep sigh, but as they navigate the taste of adulthood that is college, it might just be the pick-me-up they need.