According to a study by U.S. Bank, only 41% of Americans use a budget — an increase of just 9% from a study conducted by Gallup in 2013. Budgets provide a proven method for managing spending, meeting savings goals, and paying off debt. However, the majority of Americans underestimate the importance of budgeting. Given that nearly 50% of all Americans state that an unexpected expenditure of $400 would require them to sell a possession or borrow money, it’s clear that we need to learn better spending and saving habits.
Expenses and incomes may fluctuate as you work hourly jobs and move around, but the principles learned during this time can be used for the rest of your life.
Though many MBA students feel too busy to sit down and make a budget, setting up a spending and savings plan provides many benefits. Rather than avoiding the reality of overspending or living outside your means, tracking your incoming and outgoing money requires you to create a plan of action and change your habits. By learning this skill early, students set themselves up for success when it comes to saving for down payments, emergency expenses, children’s educations, and retirement. Budgets also help individuals save thousands of dollars each year by adopting better spending habits.
When creating a budget, MBA students should remember that they currently live in a transitory state. Expenses and incomes may fluctuate as you work hourly jobs and move around, but the principles learned during this time can be used for the rest of your life. Keep reading to learn about helpful budgeting apps, methods for tracking your spending, and effective ways of cutting costs while in school.
- Total Income
Total income refers to the total amount of money students receive regularly or irregularly. Funds to consider when tallying this number include savings, financial aid, and money received from work.
- Monthly Income
Individuals regularly earn monthly income from a job. Many online MBA students work hourly jobs rather than salaried positions, meaning their monthly income fluctuates based on how many hours they work.
- Discretionary Income
The term discretionary income denotes funds left over after paying for what you cannot live without. Any money not spent covering essentials falls into this category.
As the name implies, essentials are items or expenses that individuals need to live and succeed in school. Examples include housing, utilities, food, medicine, tuition and fees, and books for your MBA classes.
Nonessential expenses do not cover basic needs. Examples include a morning latte, new clothes, dining out, and vacations.
- Fixed Expenses
Fixed expenses do not change from month to month. Examples include rent or mortgage payments, insurance premiums, and bus passes.
- Variable Expenses
Variable expenses vary each month based on factors such as usage. Examples include utilities, fuel, parking fees, and grocery bills.
- Emergency Funds
These funds protect individuals against unexpected events. A form of savings, emergency funds help students who suddenly lose their jobs, experience financial hardship, or encounter expenses such as a broken car.
Track Your Spending
- Assess Current Financial Spending: Before creating a personal budget, online MBA students need to get a sense of how much they spend on average each month. Students should assess their spending in previous months to understand where their money is going. Most banks and credit unions now provide online monthly statements. Download these statements and make a list of individual expenses and amounts in an average month.
- Categorize Expenses: After identifying all spending across a two or three month period, begin categorizing expenses as essential or nonessential. If you struggle to decide which column an expense goes in, ask yourself if you need or want it. Things like rent, car payments, insurance, and student loan payments are essential expenses, while gym memberships and coffee shops count as nonessential expenses. Even though you don’t spend money on them monthly, include educational expenses such as books and class materials in the essential column.
- Do the Math: After creating your list of average expenses, calculate the total monthly cost of your essentials. Double check this list to ensure no nonessentials snuck in. Once you have this number, subtract it from your monthly income. The number you have left reflects your monthly discretionary income.
- Create Your Budget: Because discretionary income denotes how much money learners can use for extraneous and unexpected spending, this number needs to be more than $0. If your discretionary income is negative, you spend more money each month than you make – a significant issue for degree seekers living off student loans. If your essential expenses need cutting down, you can consider a few strategies. Rather than dining out all the time, create a weekly meal plan based on grocery store sales and leftovers. If you can change your phone plan to a less expensive option, consider downgrading. Because MBA books are notoriously expensive, look into purchasing used books (be sure to get the correct edition) or renting texts. Check out the section on cutting costs later in this guide.
Many budget planners recommend that individuals follow the 50/20/30 rule when creating a monthly plan. Under this rule, students should spend approximately half of their income on essential expenses, 20% on savings, and 30% on nonessential personal expenses. While the 50/20/30 rule provides a great framework for getting started on money management, it doesn’t suit everyone. Many students find it difficult to stick to these exact proportions, especially on a limited income.
Maintaining Your Budget
Your budget is not a static, stationary document. Many online MBA students create their budgets at the start of the year, but find it outdated after a few months. If you find yourself relying on credit cards to cover expenses, picking up extra shifts just to cover the basics, or spending lots of money on nonessential items, your budget probably needs an update. Many first-time budgeters gain a much fuller sense of their monetary needs and wants after tracking their incoming and outgoing funds for a few months. Don’t be afraid to change things up if you find a better way to keep yourself in line.
How often you should change your budget depends on the individual person. Some budget planners conduct annual reviews, but students may find it more helpful to review at the end of each month or semester. Find what works for you and stick to it.
Microsoft Excel: For the learner who prefers a more hands-on approach and full customization options, Microsoft Excel may provide the best option. In addition to desktop-based software, many cloud-based applications such as Google Sheets allow users to access their documents on laptops, tablets, or cell phones from any location in the world. Individuals interested in learning more about free spreadsheets can check out this article on The Balance.
Mint: Offering both free and paid versions, Intuit’s Mint software provides customization options for students who need a malleable budgeting app. This easy-to-use budgeting software also helps students keep up with bills, schedule payments, and view monthly spending reports.
Personal Capital: Personal Capital offers budgeting and financial planning tools that grow with students as they graduate and begin thinking about wealth management, retirement planning, and spending goals. The budget app allows users to manage all accounts in one place, observe spending habits, and avoid hidden fees.
Simple.com: For the learner who values style and substance, Simple helps with financial management without any hidden fees. A sleek, intuitive interface allows users to focus on their finances by setting goals, tracking essential and nonessential expenses, and avoiding debt.
Wally: Provided completely free of charge and with no in-app ads, Wally allows students to keep track of their expenses, figure out where they overspend each month, and set achievable financial goals. Wally also works across global currencies for students who travel often.
YNAB: Although You Need a Budget (YNAB) charges a monthly fee, this budgeting tool has helped thousands of people break free from the paycheck-to-paycheck cycle, cut their debt, and save money effectively. You can access YNAB on any type of device.
Tips for Cutting Costs in College
Adopt Healthy Spending Habits
At-Home Meal Preparation
Use Student Discounts
Find Cheap Textbooks
- Personal Finance in Grad School: Inside Higher Ed lists helpful tips from students who learned the value of setting and sticking to budgets while in grad school.
- How to Pay for Your MBA Degree: Poets and Quants helps students trying to pay for both an MBA and monthly expenses. The guide describes how to balance your budget and maintain your sanity along the way.
- Creating Your Budget: The U.S. Department of Education offers a number of helpful tools and ideas for students looking to create an effective budget.
- Budgeting for College Students: The Advantages: This helpful article, hosted by Southern New Hampshire University, offers a number of simple ideas to help students gain control of their finances.
- The Importance of Creating a Strong MBA Budget: Accepted.com describes why maintaining a budget is incredibly important while in grad school, especially for international students.