Economy for students, part 1: How to prepare a monthly budget

This five-part series is about economic issues for students. Part one is about how and why to prepare a monthly budget.

Later parts will cover students’ food costs, financial aid for students, how to get a power contract, and home insurances.

Monitoring and planning your expenses helps you maintain a healthy personal economy and reduce stress that is often related with money.

This story explains you how you can estimate your monthly expenses to build your own monthly budget. The main idea is to evaluate all your expenses in advance and compare them with your income (benefits, salary, other sources of income). This allows you to make sure you always have enough money to cover mandatory costs such as rent and food, at least, and helps you to avoid spending on less important things.

Start preparing the budget by listing all your monthly income. The sources of income may include, for example, study grant, student loan, general housing allowance, salary (if you are working), and any savings. Based on your income, calculate how much money you can use during one month at the maximum.

If you are new to living on your own and have no experience on where all the money goes, you can study and copy other people’s monthly budgets. By searching ‘student monthly budget’, you can find many good examples.

Keep in mind that everyone’s personal budget is different, as expenses are influenced by things such as your lifestyle or type of apartment. At first, it is advisable to overestimate rather than underestimate your budget to make sure you will not run out of money.

When you have lived on your own for a while, you can adjust your original budget based on your actual incurred expenses.

Make sure you don’t spend more than your income allows for. If you face extra expenses in one month, try to plan how to compensate it the next month.

You can prepare your budget on paper or in digital format. A digital budget has the advantage of being easier to modify and update. Microsoft Excel and Google Sheets are recommendable for this purpose, because they are designed for processing numerical values.

Start by considering all the things you spend money for. Do not think of detailed costs or prices yet; make a list of all the expense types in your life. It is a good idea to group these expense types under various categories.

A suggestion of categories and expense types therein:

In addition, it is worthwhile to give savings their own category. You are more likely to be able to set aside a small sum if you have already marked it in the budget than if you just mean to save ‘if there is anything left’. It is good to transfer savings (even small ones) to a separate bank account that is not used for daily expenses.

Make a vertical list of all categories and the detailed expense types therein. You decide what kind of groupings are the most suitable. You need not separate all expenses; for example, ‘daily goods’ can include not only food but anything that can be bought at a supermarket (shampoo, cleaning supplies, lamps…).

You should make it detailed enough to get a clear picture of your consumption but easy enough for you to keep maintaining.

After listing the cost types, you should estimate how much you spend on each of them. On each line, write down an estimate of how much money you spend on it monthly.

You know the exact sum of certain expenses such as rent, Spotify, or your gym card, but some others you have to estimate at first.

Even though you aim for the estimated sums to be accurate, it is a natural fact that reality does not always follow the exact budget. You can update your estimates for future months, once you have some experience on how much money actually goes where.

Sometimes the budget is thrown by unexpected expenses. Writing everything down can help you survive even the more surprising expenses. Study your budget and think of places to save to make ends meet.

Expenses are also expected to vary between months. For example, your costs might be different during summer when you participate in many different summer events compared to the winter time when you spend more time at home.

There are surprisingly many student discounts on various costs (e.g. power contracts, home insurances, public transport, sports services). As you are preparing your budget, you should google each service with the word ‘student discount’: search on Google e.g. ‘home insurance student discount’ to find cheaper prices for students.

Calculate the total sum you spend in a month and make sure it does not exceed your monthly income. If your estimated expenses exceed your income, go through your budget again and think of expenses you could reduce.

Students often have tight budgets, having to sacrifice on many things. However, you can consider if you can afford to do something nice every three months, for example. Planning such things in advance can help you keep a strict budget on the remaining months.

It is good to record all actual costs incurred on your budget to start making it more accurate.

One clear-cut way to record expenses is to save all receipts for your shopping (including online shopping and automated charges) and mark them all up at once on a certain day of the month. Last day of the month is a good idea; it also gives you a chance to monitor for any changes you need to make for the next month’s spending.

If you have spent more money than you budgeted, deduct it from some expense you had planned for the next month.

If you are using spreadsheet software such as Excel, record the data from all receipts of the month on a new empty worksheet tab. Record each receipt on its own line on the table, with columns for (at least) the date, final sum, expense type, expense category, and additional notes (if needed).

Separate tabs for each month’s expenses prevent them from mixing up and make it easier for you to browse and compare data from different months.

If you wish, you can also make a tab for recording total expenses of each month (and, for example, sums of different categories), which will make it really easy for you to compare the extent of expenses between months.

Every now and then – every three months, for example – it is good to pay a closer look on how your expenses have developed. You can make bigger changes on your budget plans such as adding or deleting expense types. It is also good to update your budget if there are any changes in your income.