Returning to school made me realize that one of the biggest challenges as a student is sustaining yourself financially on a very limited income. Although I’ve always balanced studying and working, I haven’t always been successful at managing my money. However, after many years of experience, I’ve learned that budgeting is the first step to improving your financial situation, especially when dealing with a limited income.
Effective budgeting can help you manage your finances, avoid debt, and achieve your financial goals. It also allows you to focus on your research without the persistent stress of financial worries. This comprehensive guide covers the basics of budgeting, including how to track expenses, various budgeting methods, and the financial goals you should aim for.
The first step in budgeting is understanding where your money goes. This is helpful because it helps you identify your spending patterns and where you can cut your costs.
How to Track Expenses:
- Keep Receipts: Save all your receipts and categorize them by type (e.g., groceries, transportation, entertainment).
- Use a Notebook or Spreadsheet: Manually record your daily expenses in a notebook or spreadsheet. This old-school method can be very effective.
- Apps and Software: Utilize budgeting apps like Mint, YNAB (You Need a Budget), or expense trackers available on smartphones. These tools can automatically categorize expenses and provide visualizations of your spending habits.
- Bank Statements: Regularly review your bank and credit card statements to track automatic payments and ensure you don’t miss any expenses.
After clearly understanding your expenses, the next step is to develop a budget.
Steps to Create a Budget:
- Calculate Your Income: Include all sources of income such as stipends, part-time jobs, scholarships, and any other financial aid.
- List Fixed/Need Expenses: Fixed expenses are regular, recurring costs such as rent, utilities, internet, groceries, and loan payments.
- List Variable/Wants Expenses: Variable expenses change from month to month and include groceries, transportation, entertainment, and dining out.
- Set Aside Savings: Allocate a portion of your income to savings. Even a small amount each month can add up over time.
Budgeting Methods:
- 50/30/20 Rule: Allocate 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment.
- Zero-Based Budgeting: Every dollar of your income is assigned a specific purpose, ensuring that your income minus your expenses equals zero.
- Envelope System: Use envelopes for different spending categories and put the budgeted amount of cash in each envelope. When an envelope is empty, you stop spending in that category.
Another important step is setting financial goals, which provide direction and motivation for your budgeting efforts. Goals can be short-term (within a year), medium-term (1-5 years), or long-term (more than 5 years). Characteristics of financial goals include being specific, realistic, and time-bound.
Examples of Financial Goals for PhD Students:
- Build an Emergency Fund: Save 3-6 months’ worth of living expenses to cover unexpected costs.
- Save for Research Costs: Set aside funds for conference fees, travel expenses, or research materials.
Budgeting is very personal and needs to be contextualized on your specific situation. Each of us has our way of tracking expenses. For example, I don’t like downloading my bank statement and highlighting everything; instead, I use a notepad to write down and sum up all my expenses and income. I like to follow a percentage budget but also a zero-based budget. My goals as a PhD student are as follows: build an emergency fund worth at least 6 months of living expenses, save money for workshops, and purchase any educational tools that will help advance my career.
Whatever you choose, the key is to find what is best for your situation and build a budget that is also flexible