So by now you’ve made a list of your average expenses and compared it to your income. Remember that you also need to include savings as an expense in your budget. Do you currently have an emergency fund? An emergency fund is extra money, usually in a savings account that can be used for unexpected expenses that are not included in your monthly budget. Examples could include a major car repair, a broken laptop, reduced hours at your part-time job, being laid off from your job, medical bills, etc. This is important because you don’t want to have to take out additional student loans, ask your parents or family for money, or put something on a credit card just because you don’t have an emergency fund. If you’re living on campus, we recommend that you have a few hundred dollars for your emergency fund. If you’re living off campus, we suggest 3-6 months living expenses. This is important because if you get laid off or aren’t able to work you will still need to pay rent, utilities, etc. Using your tax refund to save for your emergency fund can be a great way to get started. Decide on an amount that you want to start saving each month to build up your emergency fund. It will take some time to build up 3-6 months worth of living expenses, and that’s ok. Having a small emergency fund in your checking account also ensures you’re not living paycheck to paycheck and that you are not at risk of overdrafting your accounts.
Another expense you will need to include in your budget is savings for any financial goals you have. A financial goal can be anything from saving up for a summer vacation to saving for a down payment on a house. If you want more information on how to create financial goals, check out this blog post. When you are saving for something, whether that be a trip or an emergency fund, you want to make sure it is a top priority for you. The easiest way to stay on track with saving is to transfer money from your checking account to your savings account right after you get paid. This way you won’t miss the money as much and it won’t be available for you to spend in your checking account.
You also need to factor in debt repayment expenses into your budget. If you carry over a credit card balance, you should try to decrease expenses in order to have more money available to pay towards your balance each month. You can also work to decrease expenses to pay off other loans such as student loans, car loans, and mortgages more quickly.
Check back soon for our next post in our budgeting series which will explain wants and needs and give you tips on how to save money.