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Different people might have different interpretations of the word "budget." Some might associate being on a budget to living below a certain standard or an inability to acquire desirable-quality items. At the same time, others might see a budget as a road map to reach financial freedom so that they can afford a more luxurious standard of living. The fact remains that budgeting lies on the foundation of all financial planning. It does not matter if you live from paycheck to paycheck or make $300,000 a year; a budget can help account for that income. It provides analysis on your spending habits and is used as a financial tool to better structure and allocate resources for individuals, companies, and governments.

The first step to budgeting is setting financial goals. As a student, you will need to adopt a budget and use it to project your short-term and long-term goals. Regardless of if you have a job that earns money or not, budgeting can help you control your spending to make ends meet. Your main mission in college (besides academia) is to invest in your knowledge and skills so that you can conquer life's challenges in your future. Budgeting is a soft skill that will serve you well in the years to come. 

The process of budgeting is simply to state your income (money coming in), and examine your expenses (money going out). The difference between your income and expenses represent your cash flow budget and it should preferably always be in the positive (when income exceeds expenses). A successful budget helps you recognize your needs from your wants and helps you control wasteful spending.

A budgeting plan can be created by doing the following steps: 

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  • It is critical to examine your spending habits and divide them into two categories — wants and needs. As a student, it is imperative that you optimize the use of the money available in making the best possible financial decisions. To itemize your spending list and prioritize by needs is a first step in the right direction of establishing good spending habits. It is important to keep in mind that if you do not establish a good budgeting plan as a student now, you might have to spend the rest of your life trying to climb out of the budgeting deficit. Keep your spending within your means.

  • Decide why you want to create a budget and which guidelines you are willing to follow. We all have different budgets based on our incomes and how much we want to allocate to each of our expenses. Your budget should be tailored specifically for you to meet your income and your expenses. Make sure you allow for a few "wants" so you do not feel totally deprived (e.g., a latte every once in a while, or a movie you want to see).

  • Money can come in from different sources such as a part-time job, a charge on a credit card, or a financial aid refund check. Make sure you differentiate between income and borrowed money. You want to steer away from borrowing debt to satisfy living expenses. If you receive a refund check from your student aid as a result of borrowing student loans, make sure you use it strictly for educational purposes such as books and supplies. Steer away from using student loans for living expenses. Instead, get a part-time job or search for additional grants and scholarships.

  • Make sure you keep your list practical and sustainable, reduce any waste, and control all unnecessary spending. The best way to achieve a lien list of expenses is to track your spending for a period of time and identify your needs and wants.

  • You will need to make any adjustment to make ends meet. Keep a guide to help you make better decisions and stick to your budget. Put yourself on a weekly or daily allowance to make sure you stay faithful to your commitment. You will be glad when you graduate with a wonderful degree without incurring an unmanageable sum of debts.

The information about budgeting has been drafted from Penn State's Financial Literacy and Wellness Center.