Finances: Creating a Budget

Family Modules

Module 6 Part 3



Objective: The student will determine his or her income and expenses, then devise a budget for both required and optional expenses in the college setting.

This lesson is designed to help you plan a financial “map” to manage your finances while attending college. Working through this lesson will enable you and your family to discuss the costs of college and the steps for creating a budget.

Estimated time 30-45 minutes

Materials included:

Curriculum Link:

This section corresponds with Module 6 Lesson 2 in the STEPP Classroom Transition resources.

Learn About It

How to Make a Budget in College

Before delving into budgeting, let’s first define a few key terms.

A budget is a plan created by looking at detailed estimates of how much you expect your income and expenses to be over a given period of time. Budgets are used by individuals as well as businesses, and they all serve the same purpose: to ensure that you plan to spend within your means and make informed choices about how to spend money based on how much needs to be allocated to specific purposes.

Income describes any money that is coming in to you. Most people’s primary source of income is a paycheck from a job, but there are many other possible sources of income. For many college students, financial aid is the primary source of income. For the purposes of budgeting, you will need to consider all sources of money as “income” even if those sources wouldn’t traditionally be classified in that way. For example, parents are a major source of financial support for many college students. Although money received from parents isn’t necessarily “income” in the technical sense, when making a college budget, it should be considered as such.

Expenses refer to anything you spend money on. Expenses for college students could include anything from textbooks to car insurance to movie tickets.

Key Ideas

Remember these two principles when you create your first budget. Although they may sound obvious right now, you may soon see that these principles are not as simple as they seem.

First is the idea that your income must be at least as much as, or preferably more than, your expenses. In other words, you can’t spend more than you earn. Although it is theoretically possible to spend more than you earn by taking out a loan or using a credit card, for the purposes of budgeting, we need to assume that you want to create a balanced, sustainable budget.

Second is the idea that your money is finite. You must allocate certain amounts to each category of expenses. Because funds are not unlimited, if you increase the amount allocated to one category, you will have to decrease the amount allocated to a different category. It may help to think of your total funds as being like a pie. If you have 10 people who want a slice of pie, and you give huge slices to the first 5 people, the other 5 people will probably each only get a tiny little sliver of pie.

Categories of Income

To start your budget, you first need to consider the categories of income and expenses that you will have. Then make a list of where your money will come from and where it will go. Some common categories for college students include:

  • Employment: any money received for working. Be sure that when you’re calculating your estimated pay, it’s based on after-taxes (net) pay. If you project your income based on your total hourly rate, you’ll fall short of your estimate on your actual paycheck because taxes will be taken out. This category may include both traditional/typical jobs (i.e., paycheck for working at a grocery store or the campus library) as well as other types of employment (i.e., payment for house-sitting, or for selling something you made, etc.)
  • Parent/family contributions: All the money your family provides you can be included in this category. Some students receive a weekly or monthly “allowance” check/deposit from their family to cover some expenses; others may receive family support in different ways.
  • Financial aid: Once you have your financial aid package information from the school, you can list the types of aid and amounts you’re receiving each semester or year. If these go directly to the school instead of you receiving the funds, be sure to note that this income is specifically earmarked only for certain expenses.
  • Savings: Any savings that you intend to use during the time period you are budgeting for can be included. If you do not intend to use the saved funds, do not count it as income.
  • Miscellaneous/other: Any additional sources of income you have can be listed as well. These may include gifts you have received or know you will receive, interest or returns on investments, stipends, or payments from a trust fund or settlement.

Categories of Expenses

  • Educational expenses: Anything directly related to your education. Common examples are tuition, fees, textbooks, school supplies, supplemental materials required for courses, computer and computer peripherals, other technology, etc.
  • Housing expenses: Campus living fees (for on-campus residents) or rent (for off-campus residents) and items needs to furnish your room or apartment; household supplies (e.g., paper towels, light bulbs, trash bags); cleaning supplies (e.g., vacuum cleaner, Swiffer, laundry detergent); and any bills associated with your home or dorm, such as electricity, water, cable, Internet access, cell phone, land-line phone, etc.
  • Health, wellness, and personal care: Any items needed to maintain yourself as a healthy person. This may include toiletries (e.g., soap, shampoo, toothpaste), clothing and caring for clothing (e.g., dry cleaning), gym or fitness center memberships, health insurance, medications, co-pays for medical care or mental health care, etc.
  • Food: All sources of food such as a meal plan, groceries, dining out, snacks, beverages, and vending machine purchases.
  • Travel and transportation: This category will vary depending on the type of transportation you primarily use in college. For students who are not taking a car to college, this would likely include costs related to public transportation (e.g., subway/bus pass, taxis) and costs for transportation to get home for school breaks if not being picked up by parents (e.g., plane tickets, train tickets, gas money for a ride-share). Students taking a car to campus will likely have many more expenses in this category, including car payments, auto insurance, auto taxes, gasoline, parking fees, vehicle maintenance costs (e.g., oil changes, car washes), and roadside assistance membership.
  • Activities and organizations: This category includes any expenses related to groups or activities you are involved in. First-year students may not yet know what to expect for these types of costs until they have been on campus for a while and have begun to join organizations. This category may include dues or fees for becoming a member of a group as well as costs incurred to participate in the group’s activities. Some costs may be optional; others may be required in order to participate.
  • Entertainment: This is an extremely broad and flexible category. Examples include music (e.g., iTunes, satellite radio subscription in car, online music streaming subscription), movies (e.g., movie theater tickets, online streaming services like Netflix or Hulu), magazines and books (either e-books/online access or in print), events (e.g., concerts, tickets to sporting events, plays, festivals), hobbies (e.g., video games, fishing equipment), and vacations (e.g., travel expenses, hotels).
  • Gifts and charitable donations: Allocate money for anything you may purchase as gifts for birthdays and holidays, as well as any donations you may make to support causes or charities.
  • Savings and emergency fund: In addition to any regular contributions to your savings account that you want to make, consider whether you should put away some money “just in case” of events like car repairs, lost or stolen items, illness or injury, dorm lockout fees, speeding tickets, and so on.
  • Miscellaneous/other: If you have additional expenses that don’t fit into these categories, you can include them here or create new categories for them.

Parents Chime In

Work with your student to complete the “College Budgeting” worksheet. Have your student include it in his or her College Transition notebook.

Objective Check

Have you accomplished today’s objective?

Objective: The student will determine his or her income and expenses, then devise a budget for both required and optional expenses in the college setting.

If so, congratulations!

If not, return to the “College Budgeting” worksheet and discuss it with your parent. Keep in mind you can add to it as you plan.

Digging Deeper

Parents, once your student has gained experience with budgeting, consider extending this activity by providing your student with a budget of the money you would typically spend on his or her various expenses for an upcoming timeframe of your choice (e.g., a week or a month). Share with your student the specific expenses that those funds are expected to cover and the length of time you expect the money to last.

Then transfer control of that sum to your student and allow him or her to budget and pay for the relevant expenses as they arise. At the end of the timeframe, check back in with your student. Together, assess how responsibly he or she allocated the funds, what specific aspects of this experiment went well, and what areas need to be improved in the future.