When asked how to make good decisions with money, I start by looking at spending. Talking about spending is a good place to start with your college-bound student.
Ask the right questions
Every spending decision involves questions, such as: What’s the issue? What are the options? What are the pros and cons of each option? Which option will I choose? Would I choose that option in the future?
Ask your college-bound student questions like these to help understand spending. Listen to the answers and then work with your student to develop a budget, or spending plan. The plan should include sources of income and expenses. The goal is to prevent expenses from exceeding income. Good decisions about spending will keep income and expenses in balance.
Let’s look at some common spending scenarios for a college student. Each scenario describes the best way to keep income and expenses in balance.
In this example, college student Melissa gets $2,000 from a loan and her parents to cover five months of rent and food. Melissa shares rent and grocery expenses with three other students. A monthly spending plan to make the $2,000 last five months means Melissa can't spend more than $400 a month. Her spending plan for these two items would look like this:
- $250 for rent.
- $150 for food, or no more than $37.50 a week.
Spending at these levels would insure that the $2,000 lasted five months.
In this example, college student Tom earns $480 (net) a month from a part-time job. A scholarship and help from his parents cover tuition, rent, utilities, and food expenses. Tom's monthly spending plan for expenses other than these would look something like the following. Other than fixed costs, these numbers are averages and could vary from month to month.
- $105 for car insurance (fixed).
- $75 for cell phone plan (fixed).
- $80 for gas, or $20 a week.
- $25 for personal care products.
- $50 for shoes and clothing (average).
- $120 for entertainment, or $30 a week.
- $25 to savings and emergency fund.
Sticking to this plan would insure that Tom's $480 monthly income covered these expenses.
What if your student gets to college and starts spending more than his or her income? The basic solution is to increase income, reduce expenses, or both. In fact, increasing income alone often doesn't work. That's because it's tempting to start spending more, too. Then you're back where you started.
Any college student will do well with their spending decisions if they:
- Plan and record all spending. Make a plan, and then track spending against it. Write down everything spent on paper or on a cell phone — whichever is easier.
- Spend wisely. Pay bills on time, stay on budget, and save any money not spent.
- Organize materials. File paper bills and receipts. Print out records of online payments. Or be able to access the information online quickly.
If your college student does all these things, he or she will develop good financial habits to last a lifetime!