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Students often fall into poor financial habits and experience money problems. So, with the national student loan debt sitting at a little over $1.71 trillion, it makes good sense for college students to become financially savvy fast.

Being financially savvy includes identifying essential and non-essential spending, creating a budget, and tracking common expenses you may have missed.

Read on for all our tips on managing your college finances.

A New Chapter

College is an exciting new part of your life. And it should be! The college experience is one of the most enjoyable parts of your young life, and you should enjoy it. You'll make new friends, learn interesting things, and figure out who you want to be.

Obviously, all this costs money. Loans through a financial institution that cares about your wellbeing is a great way to pay for tuition and housing so you can focus on studying.

Let’s get into all the things you need to keep track of as you enter this new phase.

Creating a College Budget

Only one in every three Americans uses a budget to manage their money. Is it any surprise that so many people struggle to get a handle on their finances?

Creating a budget isn't hard; it doesn't take very long, and it's something that we know is essential. So why then does it seem to be such a problem for so many?

Many people have inadequate financial understanding, and it's no different for new college students. Unless your caregivers have helped you understand day-to-day living expenses, you're likely to feel lost.

There are a few easy steps to creating a solid budget:

• Track your income and expenses for a few months
• Categorize your spending
• Figure out your limits
• Review and repeat

We'll break down each of these steps and set you on the right path to creating a budget that works for you. By the end of these steps, you'll have some brilliant financial tools at your disposal, and you'll feel more confident about budgeting for the great college adventure.

Tracking Your Income and Expenses

Whether you do this using a spreadsheet or one of the excellent free apps for tracking budgets, you need to do this. When you track your income, you need to look at it holistically and include every source.

Sources include a part-time job, various side hustles, or anything that nets you some income. The key is to record everything, no matter how trivial (bonus points for constant sources that provide the same amount every month.)

Expenses, of course, are anything you spend money on. Now that you're going to college, that list is going to expand rapidly. Look a little further down for a quick list of some things you might want to track. Again, the key is to record everything, even if it's something you think you'll only do once. At the end of a month, semester, or year, you may notice patterns that will help you budget better.

Of course, you can break this down as you wish. You can have a monthly, weekly, or even daily budget. We don't suggest having a long-term (six months or a year) budget for your day-to-day tracking. Instead, use that for long-term goals.

If you're living with roommates, this would be an excellent time to talk about common budgets and spending. Anything that you need to buy for everyone or that everyone will use should be in this discussion. Don't be afraid to tackle this topic; it will save you plenty of problems later on.

Speaking of Goals

Something that often helps people create and stick to a budget is tracking long-term goals that they want to achieve for themselves. For some people, this means tracking when they will finish various payments. For others, this means tracking how much they need to save for a trip.

Perhaps you want to go to spring break this year, but you know that you don't have enough right now to finance it. Well, now's a great time to set a goal and work backward from when you need it. That way, you know how much you'll need to save.

Maybe you've always dreamed of backpacking across Europe during vacation or just want to buy your own car. These are all reasonable goals and things you should research.

Your goals don't have to be lofty either. For example, if all you want is to get pizza once a week, that's a goal!

Categories

There are a couple of common college expenses that most students need to keep track of. This list is not exhaustive, but it should give you a good starting point.

• Savings
• Rainy Day fund
• Accommodation
• Laundry
• Phone and Internet
• Groceries
• Transportation
• Entertainment
• Insurance
• Random shopping

The list deliberately doesn't include your tuition costs, and the article will cover accommodation further down.

You may notice that the first three categories don't sound very exciting. However, they are the three most important in some ways. They're the three that will have the most impact on you and your future self.

Let's start by concentrating on the Savings and Rainy Day fund.

Savings is a bit of a personal choice. While it's great to save as much as you possibly can each month (reach those goals!), that amount will be different for everyone. A sensible starting point is to save at least 5% of your income. That should give you a reasonable chance of hitting your goals and show you how easy it is to save.

When it comes to Rainy Day funds (otherwise known as emergency funds), that's another personal choice, but the usual figure is between 10 and 12 percent of your income.

This fund is there as your safety net. Something breaks and needs replacing? Emergency fund. When you find yourself stranded because your car's hood is belching smoke? Emergency fund.

Categorize Your Spending

One of the most important and challenging things to get right is the difference between essential and non-essential spending.

Now that you're keeping track of all your spending and income, it's time to go in and put one of the categories from above against each transaction. If it doesn't fit in any of those, create a new category.

Essential spending is anything that you need. When you're listing essentials, include items like food, laundry, and your cellphone (yes, cellphones are essential).

Non-essential spending covers everything else. Usually, this means things like entertainment, random shopping, and so on. But, again, this will be different for each person, so put it in that list if you feel like a category should be essential. The list isn't final either - you should think of it as a living thing that you can change at any time.

As you get used to budgeting, you'll notice that some things you viewed as essential aren't on that list anymore. You will also see that some things you thought you could live without have become very important.

That's fine. The whole point of tracking and categorizing is to give you insight into how you live and, more importantly, how you want to live.

Figure Out Your Limits

Once you've got at least one month of tracking and budgeting done, take a look at the summary of everything that's come in and everything that's gone out. If you're happy with the way things are, that's great.

Most people need a few months to figure out what they want out of a budget, so this is the time to make some adjustments. First, think about how this month went and how you want next month to look. Then, you may need to adjust some expenses either up or down to match your expectations.

This is another area that is open to interpretation. Some people want more entertainment in their lives. Some want less. Both are equally fine for the purposes of budgeting, and you will have your own preference.

Remember, it's perfectly okay to change this as often as you like until you find the absolute best budget for you.

What if My Expenses Are Higher Than My Income?

Don't worry too much; that's also very common. However, if you leave it unchecked, you will have a problem down the line.

If you're able to supplement your income, do that until your income is higher than your expenses. If not, you may need to trim down your spending until you reach a place that makes sense again. Now that you've got all the tracking information and budget, though, this shouldn't be hard to figure out. 

Sometimes it takes a couple of months of cutting non-essential spending or switching out your goals to find the right balance. For example, if your entertainment budget is very high, consider figuring out which events you want to go to and setting those as goals instead of expenses. There are easy ways to save on entertainment.

Review and Repeat

Everyone has a rhythm that fits them for budgeting. Some people like to review their budgets and adjust them every week. Others prefer to do it monthly. Either way, it's an excellent idea to keep looking at your budget and make it part of your essential college work.

Think of it as a very important assignment, but one that benefits you directly and can help you reach your goals faster.

Don't be afraid to throw out something that isn't working and start from scratch. You need a budget that is suited to your life, not somebody else's.

Living With Roommates

This is something of a special section because it has an impact on how you budget. It would be great if everyone agreed on how to get things done. But, of course, different roommates have different needs, and some may budget well while others don't. So again, that's fine - but now that you're financially savvy, it'd be a great idea to spread that around to your friends.

However, one essential thing is for the household to have a unified plan for budgeting everyday expenses. A household or roommate budget has an impact on everyone.

You should, at the least, identify expenses that you will take care of together and set clear rules for what each person will cover.

It would be best if you discussed some specific topics:

• What happens if something big breaks
• Things that we all use
• Shared food vs. individual food
• Shared laundry costs
• Upkeep of common areas

The reason it's a good idea to discuss these ahead of time is to avoid misunderstandings later.

Let's look at a scenario.

You are sharing an off-campus apartment with two friends. Each of you supplied some of the communal equipment that you use. The kitchen has been supplied with silverware, a microwave, a fridge, and other essentials.

There's a shared common room with a TV, Xbox, and couch that everyone is free to use. Each bedroom is furnished by whoever lives there. Everyone shares internet access.

In this scenario, who pays if the TV stops working, or the microwave doesn't heat food anymore? What if the fridge breaks down?

Do you split the cost of internet access? What about Netflix?

As you can see, there are many things to consider when you're living with someone else. It doesn't mean that you can't budget effectively; it just means that you need to work together on some of your budgeting.

Savings Savings Savings

The earlier you start saving, the better. That's a simple fact that is well known across the whole world. So if you give yourself great saving habits now when you're in college, you'll keep them the rest of your life.

It's hard to balance work and academic life, and you're probably not going to be earning millions right out the door. That shouldn't stop you from saving, though. Even if you only save a small amount each month, you'll build something that will be useful later on.

Setting goals for yourself is a great way to save. For example, if you say to yourself, "By November, I'll have saved $1000", that's setting a concrete goal. The number itself doesn't matter; what matters is that you have something to aim at.

Of course, you don't have to limit yourself to a monetary value; you can save towards an event or a thing. Want to attend Comic-Con? Sure, it's far away, but it's absolutely doable if you set yourself a goal and save towards it.

Saving is its own reward, though. Even if you don't reach your goal, you'll end up with some cash saved up that you can use at your discretion or put back into savings to generate some income.

You may have heard of the magic of compound interest. When you start saving, and you keep saving, compound interest starts to work for you.

Using a calculator to show you how this works is one of the best ways to understand how well compound interest can do.

The Emergency Fund

Emergencies happen. That's simply a fact of life. Fortunately, it's something that a financially savvy person can handle. It's essential to think about emergencies: only 39% of Americans said they could afford a $1000 emergency without borrowing or obtaining the money in another way.

You can't predict everything that might happen, but you can identify expenses that may come up frequently.

Perhaps you will need to travel home to visit a sick relative suddenly. Maybe your car will break down, and you'll need to do a major service.

Just because you're earning something now doesn't mean that will always be the case. If the pandemic has taught us anything, it's that you suddenly might not have the income you had before.

Thinking about this kind of emergency spending isn't particularly fun, but there are a few costs you should track so you can structure your emergency fund properly:

• Trip back home
• Major car repair
• Sudden loss of income
• Medical emergency

Flights and Transport

Flight prices may be at an all-time low, but that doesn't mean they can't throw a spanner in the works. Get a ballpark price for getting back home in a hurry, whether flying, driving, or taking a bus.

Major Car Work

Common problems with cars that you might need to suddenly pay for include:

• Dead battery
• Flat tire
• Broken AC
• Engine problems

Call around to some local mechanics and get an idea of what each of these may cost you. Unfortunately, engine problems are a very vague category, but many things could go wrong, so you'll have to do your best to estimate.

Sudden Income Loss

Jobs come and go. Sometimes they go quickly and without warning. If your budget includes your income (and it should), you might find yourself unable to cover part of your expenses for a month or two while you find a new job.

Work out what you bring in each month and budget for at least two to three months of unemployment so that you're covered in case of an emergency.

It's also a good plan to research whether you qualify for unemployment benefits. Michigan has an excellent resource for checking this.

Medical Emergency

We've all seen that things can happen quickly and without any warning. As a result, you may need to have emergency surgery or go in for a quick procedure. Even with insurance, this could cost you something extra, so having enough in your emergency fund to deal with it makes sense.

This category is hard to quantify because medical costs vary from area to area. Nevertheless, the University of Michigan does publish a list of standard charges that should be useful for research.

Your Path to Financial Freedom

Now that you've got everything you need to figure out your finances, you might be considering joining a bank. We've all seen them around campus, offering gifts like t-shirts and caps if you open an account. However, especially at this stage of your life, a bank is probably not the right way to go.

There are better ways to invest your money, save towards your goals, and get good returns through credit unions.

What Is a Credit Union?

In comparison to a traditional bank, a credit union is an entirely not-for-profit financial institution. Credit union members own the credit union.

Unlike traditional banks, which must answer to shareholders and generate a profit, credit unions' primary goal is to encourage members to save.

The idea first came from Germany around 1909, and it's gained popularity around the world since then.

Your savings are insured, and transparency is built into the organization itself. 

Chief specializes in securing finances for college students, and we'd love you to contact us and find out how we can help!