When preparing to go to university, it’s important to think about how you’re going to fund your time there. There are several different budgeting techniques that can help your money go further and enable you to prioritise your spending on the things that are most important to you.
How do I create a budget at university?
At university, creating a budget is a great way of helping you manage your money. The aim of a budget is to help you balance your income and your expenses, typically on a monthly basis.
There are a few common budgeting methods out there, including:
- The traditional method
- The 50/30/20 method
- The 80/20 budget
- Envelope budgeting
- Reverse budgeting
What is traditional budgeting method?
Traditional budgeting is when you calculate your full monthly income and then subtract your regular expenses. Your income can come from a combination of sources, such as your student loan, family money, scholarships and any salary from a job. Your regular expenses will include rent, utility bills, monthly subscriptions, food and any credit card payments. Once you work this out, you will be left with a figure that represents your disposable income, which you can choose to spend, invest or save however you choose.
What is the 50/30/20 budgeting method?
This method is a guideline to cover your financial expenses; it works particularly well for students who receive large payments of student loans throughout the year. Half of your money (50 per cent) is set aside for your needs. This is everything you must pay for such as rent, bills and your phone contract.
Approximately 30 per cent is set aside for your “wants”, which can cover additional things that you could get by without, such as clothes or concert tickets. The final 20 per cent is set aside for your savings. This method might make saving a little easier as it helps you put aside a fixed amount each month.
What is the 80/20 budgeting method?
The 80/20 method is a simple approach to budgeting in which you take 20 per cent of your income and put it in your savings and the remaining 80 per cent goes towards your expenses (needs and wants).
What is envelope/category budgeting?
The envelope budgeting method is designed to restrict you to spending only a fixed amount that you have assigned for each expense category every month. First, you add up your monthly income. Then you set up your spending categories, including:
- Eating out
- Personal care
- Pet care
- Household items
Once you have the categories sorted, you assign a budget to each (groceries – £200, clothing – £40, and so on). This may take a few months to get right because you may need some time to settle on the appropriate amount for each category.
If you hit the limit of each category, the aim is to avoid spending any more money from that category until your next payday. At the end of the month, if you have any money left over in any categories, you add it to your savings and start from zero again for the next month, or just roll it over into the next month.
Traditionally, this method can be achieved by withdrawing cash each month and physically putting it into envelopes for each budget.
However, if you don’t tend to take money out very often, many bank accounts such as Monzo or Starling allow you to set up similar categories within your account to help you use this method of budgeting.
What is reverse budgeting?
The aim of reverse budgeting is to save first and spend afterwards, which is the opposite to the other approaches. This method involves you setting aside a previously decided savings amount first before paying any expenses. A recommended amount to start with is 10 per cent of your income. The second step is to pay out all your necessary payments, such as rent and bills. Finally, any leftover income is used for additional purchases.
Ola Majekodunmi is the founder of All Things Money, an online platform designed to provide young adults with some of the financial tools needed to help navigate the world. Here she shares her top tips to financially prepare for university