The art of budgeting (student edition)

Following the money

Without carefully tracking spending on an ongoing basis, a budget quickly becomes an artifact of past good intentions. The best way to do this is write everything down in a little note-book. Yes, it is old school. But the mental exercise will raise your awareness of spending habits and make you think twice before dropping dollars on non-essentials. “Tracking will tell you if you’re overspending in some areas like entertainment — a common expense for that age group,” Fry says. For the tech-inclined youth of today, putting pencil to paper may not have the same attraction as using an app on a smart phone. Fortunately students have plenty to choose from in this respect, says Shawnnette Fraser, regional manager at TD. “A lot of financial institutions offer apps for your phone that can track spending.”

Incidentally, TD recently launched MySpend offering real-time expense tracking and money management. “It’s free and as soon as you buy something it automatically tracks how much your spending on food, necessities, gas and so forth so you can see where your money is going,” she says. Regardless of how it gets done, tracking expenses on a real-time, weekly or monthly basis lets you to see where the money is flowing so you can make informed choices to reduce costs — like beer — so you divert cash to other goals — like saving.

Build a stash: Ensuring you have an ample stash of ‘oregano’ is not the goal here. Rather you should try to build a stash of cash even if you’re surviving on ramen noodles and caffeine. “You should always try to set aside a little bit of money for variable expenses,” Fry says. Having money set aside for clothes, vacations and gifts, for example, will avoid the all-too-common money trap of ‘I need some clothes — or whatever — and now I have to buy them on credit because I didn’t save.’ Even $10 a week adds up over time. Come February, for example, you could have a nice little stash for some fun during Reading Week. This is not to say that saving isn’t difficult. But it is less so if you’re following tips one and two (budgeting and tracking expenses). “It comes down to lifestyle choices,” Fry says.

Only after realizing you spend $100 a month on coffee and beer can you make the decision to spend $60 instead, and save the rest.

Mind the credit: Financial institutions and government seemingly fall over themselves to bankroll higher learning. After all, they want to help you (while helping themselves at the same time). This money comes at a cost. Whether it’s a credit card, line of credit or student loan, hefty interest payments await if credit is not managed properly. Of course, in an ideal world, we’d avoid debt altogether.

But that’s impossible for most, so the next best step is to use debt wisely, Fraser says. And borrowing can be beneficial. “We always encourage students to build their credit and maintain it, so when you’re done school, you want to have a good credit rating that can help you buy a car or a house.” The subtext is to not borrow for frivolous purchases (beer, pizza and more beer). Ensure the student loans are used for tuition, housing and food as much as possible. And only use credit cards if you can pay them off. A student line of credit can be the backstop — an emergency facility as much as possible. Sure, they often have low interest rates requiring interest-only payments. But they are insidious and before you know it, a line of credit can transform into a cumbersome debt. Still lines of credit generally bear lower interest rates than government student loans, and they have much lower costs than credit cards. So when choosing among evils to pay for the unexpected, a line of credit may be the least wicked of this unholy trinity.

Get crafty with cash: Always look for ways to keep money in your pocket, Fraser says. Leverage the power of coupons and discounts. “Instead of joining gyms that might not be part of their school, get access to a gym at their school for free,” she says. “A lot of stores and companies also offer student discounts, so proactively seek those out to save a little money.” And perhaps the best advice of all: when heading out for a night of well-earned conviviality at the pub, make it a cash-only outing. Leave the cards at home. Plenty of research shows spending with plastic is much easier than using the real thing. This leads to over-spending and a downward spiral into debt if you’re not flush with income. And temptation to over-spend is particularly strong when under the influence, Fry says. “Then all of a sudden you need a pizza, and before you know it, you’ve spent your grocery money.”