The B Word, Part 2

Greetings new students! You’re just in time for the second half of a two-part budget column. You can read the previous installment (and other columns) here.

Current readers, you’ve now tracked your spending for the past two weeks, and can probably roughly estimate your spending for the rest of the month by doubling it. (You can/should also keep tracking them for the rest of the month, but this is a bi-weekly column, and I’m striving to maintain your attention.)

As a reminder, your budget is (mentally) a comically oversized bag of money with one giant inflow arrow, and a second giant outflow arrow. By tracking your spending, you are working to (first) learn the size of your outflow arrow, and (second) shrink the size of your outflow arrow. Now that you’re tracking your spending, you’ve accomplished the first goal, which leads to the second goal. It’s time to determine areas where you can spend less. For example, maybe you spend $25 going out to eat every week, which is about $100 per month. If you eat out every other week instead, or eat somewhere cheaper, the restaurant portion of your outflow arrow shrinks to $50 per month.

Splitting the outflow arrow into spending categories can be done in several ways.One simple budget splits the outflow arrow into three categories: Needs, Wants, and Savings, and allocates 50%, 30%, and 20% to each category, respectively. (This week’s assignment: compare your spending with the 50/30/20 structure.) While that structure works for some people, others prefer more specific categories.

Seven basic categories that I like to use are: Housing, Food, Transportation, Health, Savings, Entertainment, and Miscellaneous. It’s your job to decide what falls under these categories, but here are some general suggestions:

Housing typically includes rent, utilities, and garbage, but might include renter’s insurance. Transportation might include car insurance, gas, parking permits, and savings for future car repairs. Health can be a broad category, comprising toilet paper, health insurance, medications, saving for bi-annual dental visits, and condoms. (Note: condoms are often free at student health centers and other locations.)

Savings might sound unnecessary for a college student, but getting into the practice is vital. Setting aside even $10 per month into a savings account is a place to start. The savings category can also act as a rainy day fund if an emergency happens (e.g. a traffic ticket, your shoes fall apart, etc.) Establishing a habit of saving will also prepare you for paying back your student loans post-graduation.

Entertainment should be your final consideration. In general, there’s tons of free entertainment available around Chico, so you might not need to spend anything here!

Miscellaneous often includes items like clothing, laundry supplies, birthday gifts, or books for school.

In the next column, I’ll talk further about divvying up your outflow categories, but I’ll leave you with some rough percentages suggested by various financial gurus: Housing—33%; Food—15%; Transportation—15%; Health—10%; Savings—10%; Entertainment—7%; and Miscellaneous—10%.

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