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| The Basics | Put your student on a budget
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College can be a great way to teach kids about spending. It may be the first time that they are truly on their own, handling money without parental supervision.
By Adriane G. Berg
College can be a great money management experience for both student and parents. It may be the first time that kids are truly on their own and handling money without parental supervision.
But how much money will they really need? How can they economize and develop a spending style that keeps them worry free for the next four years?
You can start by recognizing that college costs, like many types of expenses, fall into two basic categories: fixed and flexible.
Learning good budgeting habits
Try to prepay the fixed expenses. Then develop the right spending habits to manage what's flexible. If expenses are well thought-out, students won't have to take a loan from the Bank of Mommy & Daddy.
For most of our adult lives we manage inflow and outflow of cash, and it's tough. Only in the laboratory of college spending do students have the opportunity to concentrate on their spending habits alone.
If youre a student, take 20 minutes to mentally walk through your college day. Will you use the meal plan for breakfast? Will you buy snacks? Will free periods involve any expenses? What are your typical weekend plans? What might they cost?
Keep these items in mind
Here are a few of the non-tuition expenses that you as a parent and/or student should keep in mind as you prepare for college this year. By considering all of these potential expenses, you can put your student on a reasonable budget. You can also make your child better understand costs if he or she is involved in preparing this budget:- Travel expenses to home, friends houses or for a spring or Christmas vacation.
- Entertainment
- Food
- Clothes
- Sports equipment
- Phone calls home or anywhere or cell phone costs.
- Postage
- Haircuts
- Periodicals such as newspapers
- Internet service providers or other online access
- Medical and dental fees
- Insurance
- Miscellaneous needs
If spending means fitting in, will you spend or be independent? Parents should help students be realistic about social spending needs.
You can do this by asking your student to follow this series of financial exercises to learn his or her spending habits. While these are suggested for students, parents would benefit from doing them in their own lives.
1. Keep a journal
Record your money habits for three days. Write down every penny you spend. See how much goes to newspapers you never read, candy you never eat and cigarettes you shouldn't smoke. How much goes for meals out when you have a pre-paid student meal plan? How much money goes for convenience, such as cab rides, dry cleaners, or take-out food?
Don't judge your actions. Simply record what gave you satisfaction and what was a waste of money.
2. Create a chart of your spending habits
Make a budget expressed in percentages, not dollars. If you have $150 a week to spend and $50 is spent on food, that's one-third of your pie chart. (No pun intended.)
Visually calculating your spending typically has a profound psychological effect and leads to more savings with less frustration then counting pennies.
If, for example, your car takes up half your pie chart, you can begin to shift expenses away from other things to meet your auto expenses, or limit your car use if you conclude that it's just not worth it.
The bottom line is that spending is discretionary. It's up to you to allocate and to do without if you are unrealistic.
You can also take an active stance to curtail unneeded expenses and to avoid the usual student/parent money fights.
Here are 10 tips to avoid financial skirmishes:
- Instead of using a credit card, establish a debit card for the student. Debit cards obviously are limited by the amount of money held in the account of the bank that issued it. This way, students cant overextend their budgets. (Visa and Master Card offer reloadable debit cards aimed at parents of students. For more, see Keep an eye on Junior's spending habits.")
- Use a phone card that covers what you expect to be reasonable costs over a given period of time, such as a month.
- Never make a final budget until after the first two months of college. You can't really judge needs completely. Dashed expectations lead to fights. Just estimate and stay flexible.
- Be realistic about using a meal plan. Many students under-use them. See if the college will let you sign up a few weeks after school starts, instead of earlier, as they usually request.
- Put advertisements in school papers for sharing everything, including a microwave, computer, car, garage space, even an apartment.
- In your enthusiasm, don't buy new clothes for your college-bound student. Have him or her take the essentials and ship what is missing, after its been determined whats needed. This can leave more money for really important things.
- Consider online banking in which you, as the parent, have equal access to the account. Many banks now offer online banking capability, which offers much faster money transfers and also allows you to more quickly monitor cash outflow.
- Communicate by e-mail or fax with a written, not verbal, recounting of the monthly expenses.
- Don't expect freshman budgets to look like senior budgets. Things change with inflation, needs and job schedules.
- If at all possible, your student should take a job that will enhance his or her future career. A volunteer summer job at the state aquarium will get the budding oceanographer further in the long run than four weeks of asking, "Do you want fries with that?"
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Fund data provided by Morningstar, Inc. © 2008. All rights reserved.Quotes supplied by Interactive DataMSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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