Online Companion: The Complete Student, Achieving Success in College and Beyond

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Chapter 15: Money Matters

The Four A's of Budgeting

Budgeting has four basic steps:

1. accounting for income and expenses
2. analyzing your situation
3. allocating your income
4. adjusting your budget

Accounting for Income and Expenses
The first step of budgeting is accounting for your income and expenses for a couple of months. You keep track not only of big expenses like car payments but small expenses like renting a DVD or buying a snack. If you have a checking account or make most purchases with a credit or debit card, you'll have good records of many of your expenses.

Analyzing Your Situation
After you've kept track of income and expenses for a couple of months, you should analyze your situation by asking yourself the following questions:

• Did your expenses exceed your income?
• Were you able to pay all your fixed expenses?
• Did a large periodic expense such as an annual insurance premium or tuition bill throw you off?
• Are you spending too much money on some types of things?
• Did you pay off all your credit card balances, or did you get by with the minimum payment?
• Were you able to save money for one of your goals (vacation, tuition, a new stereo, a car, down payment on a house, retirement, etc.)?

Your answers to these questions will point out any weaknesses in your current money situation.

Allocating Your Income
Now comes decision-making time. You've kept track of income and expenses for a couple of months and you've reviewed your spending patterns. You probably think that at this rate you'll never have money to reach your goals. But there are things you can do.

First, figure out how much you must allocate to each of your monthly fixed expenses. After you've budgeted your fixed expenses, review your variable expenses to see where you're overspending. Here you must make judgments between what you really need and what you want. Try to allocate money for things that are really important in the long run.
Next, consider an emergency fund. Things happen all the time and you could be caught short if something unexpected happens. A minimum of 2 months' income is recommended for this fund. This will help cover unplanned expenses such as repairs or loss of income through unemployment.

Finally, consider your goals. If you want to take a vacation in Europe or buy a house, start saving now-even if you can only afford a few dollars a month.

Adjusting Your Budget
A budget is not carved in stone. As you try out your budget you may find that you haven't planned realistically or you've forgotten some items altogether. Your income will change, your expenses will change, and your goals will change. For these reasons, you should plan to review your budget periodically and revise it as necessary.

From Reaching Your Potential: Personal and Professional Development, 3rd edition by Robert K. Throop and Marion B. Castellucci. Copyright © 2004 Thomson Delmar Learning, a division of Thomson Learning, Inc. All rights reserved.

The Pros and Cons of Credit

In olden days, the idea of using credit instead of paying cash for items was frowned upon. Today, however, attitudes about credit have changed. It is not unusual for people in this day and age to view credit as a way of life. In fact, credit has its pros and its cons, as most things do.

The Pros

• You don't have to carry as much cash around.
• Resources are available to you in case you have to buy a necessity right away.
• You get a record of your purchases, thus enabling you to see your buying patterns.
• Credit cards are accepted virtually everywhere where an out-of-state check just won't do.
• Credit cards are ideal for Internet shopping.
• Many credit cards give rewards in the form of cash back, gift cards, and airline miles.

The Cons

• You're paying for borrowing. It's called interest, and it can add up quickly.
• You may fall into impulsive buying patterns-never a good idea.
• Your credit rating can become endangered if you can't pay your bills on time.

Reflections: Credit, a Sore Subject?
When you were growing up, what kinds of messages did you get about credit and debt? Have you gotten into trouble around the issue? What advice do you have on the subject?

The Three Major Student Loans

As with any loan, you will want to review the fine print to find out what you're getting into. But overall, these can be a great alternative to working 40 hours per week while studying for your degree.

Stafford Loans
Stafford loans are the four-door sedan of college loans. The interest rates are reasonable, as well as the terms. Looking into Stafford loans, there is an important distinction to be made between subsidized and unsubsidized.

Subsidized are the preferred type of Stafford loan because you do not pay any interest during school (the government pays the interest). You still must repay the loan, but you get a 6-month grace period after you finish school (or stop attending) to begin repaying.

Unsubsidized Stafford loans are terrific for financing your education; they just are not as accommodating as the subsidized loans. The difference is that you pay the interest that accrues during school-you do not have to make any payments during school, though. The same 6-month grace period after graduation applies.
To gain approval for Stafford loans requires filling out an FAFSA (at www.FAFSA.ed.gov).

Perkins Loans
Perkins loans are low-interest loans made to undergraduate and graduate students. As with Stafford loans, Perkins loans have a grace period before you must begin repayment (only it is 9 months after leaving school to Stafford's 6-month grace period). Once again, depending on your level in school determines the amount you may borrow. And, because Perkins loans are originated by your college, making an appointment at the financial aid office is the first step to gaining the financial help.

PLUS Loans
Unlike Stafford and Perkins loans, which are made to the student, PLUS loans are made to the parents. The catch is that you must be a dependent undergraduate student to be eligible, and parents must pass a credit check and eligibility requirements. Also, there is no grace period with PLUS loans; payments must be made while you are attending school. Still, PLUS loans are another tool to fill in the gaps of any more money that you need for you education. For more information on these loans, visit your school's Financial Aid Office and check out The Student Guide at http://www.studentaid.ed.gov

From Ahead of the Pack by Josh Richardson. Copyright © 2006 Thomson Delmar Learning, a division of Thomson Learning, Inc. All rights reserved.

Scholarships and Grants

Definitely the best way to go about paying for college-you don't pay! Although full-ride scholarships or grants are relatively rare, you might be surprised at the number of scholarships that provide a few hundred (or even a few thousand) dollars per year-and your eligibility for them. Because scholarships fall into need-based and merit-based categories, there are opportunities for everyone. All kind of organizations locally and nationally give money, including:

• The military
• Rotary club
• Masonic organizations
• Kiwanis club
• Lions club
• Religious groups
• Wealthy individuals
• Parents' employers

Many schools can tell you about scholarships and grants, so be sure to ask the financial aid office at your university. If there is college money to be had, they will likely know about it. There are also scholarship search engines online. The Web site http://fastweb.com is a reputable place to search through 600,000 scholarships worth over $1 billion. Although it may take a little bit of hunting, filling out forms, and writing essays, the payoff is certainly worth it.

From Ahead of the Pack by Josh Richardson. Copyright © 2006 Thomson Delmar Learning, a division of Thomson Learning, Inc. All rights reserved.

A Calendar of Sales and Promotions

Shopping by the calendar can save you hundreds of dollars. Make a list of the items you'll need throughout the year, including gifts. Buy them on sale and store them until they're needed. Here is a month-by-month guide of what to look for when:
JANUARY-The traditional white-sale month, with big discounts on linens and towels. Storewide clearance sales offer bargains on holiday merchandise, from Christmas cards and ornaments to toys and gift items. Other good buys include clothes dryers, furniture, radios, stereos, refrigerators, and freezers.
FEBRUARY-Presidents' Day sales and final markdowns on January leftovers. Check out air conditioners, bicycles, bedding, dishes, curtains, glassware, men's shirts, rugs, and carpets.
MARCH-Preseason sales on spring clothing and end-of-season sales on winter items. Plan ahead and look for next year's winter coats, sportswear, and sports equipment. Other bargain items may include housewares, china, laundry appliances, storm windows, and luggage.
APRIL-Use your income-tax refund, if you get one, to shop for building materials, paint, garden items, wallpaper, and outdoor furniture. After Easter, which usually comes in the month (if not March), you can look for sales on women's dresses and coats, and men's and boy's clothing.
MAY-Mother's Day and Memorial Day sales. Replenish stocks of winter blankets, get children's camp clothing and any vacation luggage you might need. Make a list of things you'll need for summer and start looking for bargains.
JUNE-Father's Day sales, plus end-of-semester sales on school supplies, including personal computers. Potential good buys include cars, tires, men's clothing, hosiery, lingerie, and summer sportswear.
JULY-Storewide clearances again. The biggest markdowns are likely near the end of the month, but your choice may be limited. After the Fourth of July, check sales on shoes, bathing suits, air conditioners, hats, appliances, garden supplies, outdoor furniture, and sports equipment.
AUGUST-A second round of white sales. Also worth checking: summer clothing, coats, fall fabrics, camping items, furniture, bedding, lamps, back-to-school supplies, and preseason discounts on fall clothing. Look for auto sales toward the end of the month.
SEPTEMBER-Labor Day sales, back-to-school promotions and preseason specials on winter merchandise. Final sales on summer clothing, garden supplies, and outdoor furniture. Watch for good buys on china, glassware, furniture, bedding, and silver. If you're a theater or concert-goer, check on season tickets at a discount.
OCTOBER-Sales on the last of the old-model automobiles, along with Columbus Day coat promotions. Take advantage of postseason sales on bicycles and fishing equipment and preseason deals on ski items. Other good buys may include auto batteries, electric blankets, children's fall clothes, and lamps.
NOVEMBER-Veterans' Day sales. You'll also find the lowest prices of the year on paint, hardware, and other home-improvement supplies, along with relatively good buys on blankets, stoves, water heaters, and used cars. Look for bargain bulbs, trees, and shrubs for late fall planting. Try to shop early; the sales will disappear toward the end of the month as stores switch to full-price Christmas merchandise.
DECEMBER-The major retailing month of the year and the worst time to buy. Sales are few. If you've planned wisely, you should be able to avoid big purchases.

From The Successful Interview & Beyond by Lois Pigford. Copyright © 2001 Thomson Delmar Learning, a division of Thomson Learning, Inc. All rights reserved.