Budgeting in the City: 6 Steps to Design a Practical Student Budget

Budgeting. The word alone can make your shoulders tense. It is often associated with guilt, restriction and the irrational fear of failure. But at its core, budgeting is simply the act of planning how you will spend your income, whether over the next 24 hours, a week, a month, a quarter, or a year.

Why is it important? A Budget is not meant to feel like reigns or heavy chains that hold you captive and prevent you from living your life freely. It is a tool that is meant to give you peace of mind, clarity on your financial status, protect you from overspending, and help you enjoy your luxuries without worrying whether you will be eating instant noodles for the rest of the month.

Remember, your financial choices today shape your future financial status. So as much as it might seem wearisome now, it MATTERS! So let’s make it count.

Step 1: Introspection on Your Last 3 Months

In short: Look Back Before You Move Forward

If you are just starting to budget, start by looking back at your expenses and income for the last 3 months. Note down even the small things to get a full picture of your typical spending habits. You can match your monthly expenses and your monthly income. If your expenses are more than your income for two out of three months, you are probably overspending.

Next, mark unnecessary expenses with an asterisk. These are your “Budget Villains” scheming to block you from your financial freedom!

Not sure where to start? You’ll find different ways of tracking your expenses at Step 6.

PRO TIP: Grab a cup of coffee or tea and give your financial statements the special attention they deserve. It might just make it all seem a bit easier, like any other day.

Step 2: Determine Your Goals

Budgeting without goals is like driving a car without a destination – you can drive in circles without getting anywhere meaningful. Hence, it’s crucial that you set clear, realistic financial goals. The trick here is prioritization and categorization.

The Key Question: What is most important to you and how long will it take to attain it?

For a typical student, it might be:

What is important?	Goal	Duration / Term	What do I do?
To live without constant money anxiety	Build a small emergency fund   Cut back on takeout	Short term	Save $10 per week.
Celebrate graduation	Save for graduation expenses	Long-term (assuming you just started your first year)	Save $50 per month in a high interest savings account or invest in stable financial products with high interest.
Summer vacation	Plane tickets and other expenses associated with travelling.	Medium term (assuming it’s fall semester)	Start putting money aside for that big purchase 3-6 months beforehand.

This is just a sample. What timelines and what matters to you will often be different than your friends.

PRO TIP: Do not overwhelm yourself with too many Goals. Two or three is enough.

Step 3: Determine Your Source of Income

This is usually the easiest step and the most overlooked. However, it can make or break your budget because not all income behaves the same way.

Do not just list your sources of income but categorize them.

1. Is it short term / long term income?
2. Is it occasional / regular income?
3. Is it a predictable or volatile source of income?

Regular, predictable income – student loans, scholarship allowances and part- time work – is perfect for essentials. Find more on “essentials” in Step 4.

Short term, occasional, volatile income – side gigs, commission payments, tips – can be treated as an extra bonus to your budget, if they are not your major source of income. You can use it to buy that one luxury item you have always wanted or have been saving for.

If a major part of your income is volatile, use your lowest monthly income to draw your budget. Prioritize your essentials. Direct your income to one account, set up fixed biweekly or monthly transfers to the account you use to pay expenses. It’ like you giving yourself fixed income per month but without HR breathing down your neck. Then when you earn more, save the difference.

PRO TIP: Find a part- time job or freelance work that relates to your passions so you can earn extra income to cover some of your expenses while also doing something you enjoy.

Step 4: Determine Your Expenses & Categorize Them

For most of us, determining our source of income is easier than determining where our money goes. It’s often vague: you know you spend on groceries, but perhaps not the specifics.

Details matter for a perfect budget. Well, almost.

Break your expenses into:

1. Needs = essential for survival
2. Wants = things that make life more comfortable
3. Fixed = rent and necessary subscriptions
4. Variable = ex. groceries, TTC fares
5. Seasonal = ex. Textbooks, winter clothes

Something to note, your need might be someone else’s want. And that’s fine.

Remember a budget is not meant to restrict you, it is a plan that guides you.

PRO TIP 1:  If you commute to school, you can get an unlimited TTC pass for just $128.15 per month. If you go to school every day, after four weeks commuting you spend approximately $134.00. It’s not a big difference, but with the pass you can take your time running errands without worrying about trying to stay within the TTC’s 2-hour transfer window. This way, if you miss the transfer window, you can still travel at no extra cost – which means you end up saving even more money on transit.

PRO TIP 2:  Buying groceries at discount stores such as NO frills or Freschco is much cheaper than buying at Loblaws and Metro. At the end of the day, most of these stores are just an extension of the fancier stores so the quality is similar. Also take advantage of membership cards and student discounts.

PRO TIP 3: If you don’t like cooking, instead of ordering take out every day, you can get ready-to-go meals that take less than 30 mins to prepare to cut down expenses on food. For example, HelloFresh and Chefs Plate . Do your research and choose the one that suits you best.

PRO TIP: Leave a bit of wiggle room to account for forgotten & and unexpected expenses.

Step 5: Design Your Budget – The Budget Formula

Pick a budgeting style that matches your personality and goals.

The most common formulas are as follows:

1. 50:30:20 Rule – 50% spent on needs, 30% on wants and 20% on savings and debt payment. This is the strategy that is recommended by most experts for students.
2. 70:20:10 Rule – 70% on needs, 20% on wants and 10% on savings and debt payment.
3. Pay yourself first strategy – Income minus Savings = Remaining for Expenses
4. Zero based budget – Where every penny is accounted for or assigned to something.

PRO TIP: Feel free to change your formula accordingly, customize it, try out different tools – the aim is to make your life easier, not more difficult.

Rules are meant to be bent… some rules. 😉

Step 6: Act, Monitor, Adjust

Act:

• Follow your budget and adjust it as your needs and goals evolve.
• Avoid situations that might lead to compulsive buying. Delete the take-out apps if you must.

Monitor:

• Review your bank statements and credit card statements – ideal when most of your purchases are online or through tapping your cards.
• Keep all receipts and add them up – this works best if you mostly shop in stores with cash.
• Using a budgeting app – you can manually enter your expenses and income or link your account to that app. Be sure to review their privacy policy and the kind of information they can access to protect yourself from scammers and fraud.
• Bank’s budgeting tool – you can also use the built-in budgeting tool in your banking app or website. Most big banks have one. If you are not sure if your bank provides such a service, search on the web or ask them directly.
• Use the classic notebook – write down everything you spend your money on. You also have a lot of tools at your disposal on your laptop; for instance, Excel and Google Sheets have budget templates that you can easily customize to make them work for you.

Adjust:

After the first month of following your budget, review what worked and what did not. This is the time to establish a thick line between your needs and wants. If you cut out something and were able to live happily without it, then that probably qualifies as a want. If you barely made it through the month, then the item is probably an important essential; or maybe you are just experiencing withdrawal. Be honest with yourself.

PRO TIP: Build an Emergency Fund – this is money that you will use during a rainy day, and it is very important that it is easily accessible.

Final Thoughts

Your budget should feel like a supportive friend, not a strict parent. You want to end each month patting yourself on the back, not questioning your life choices.

Remember a good budget is not about how much you have to spend, but about how best to spend what you have.

Glad you made it this far! GOOD LUCK!

References:

• For more in-depth information and interactive material on budgeting I suggest you visit My Money Coach. It’s more comprehensive than many online resources.
• For student based budgets, check out Ratehub.
• To read more on budgeting tips when your major source of income is volatile visit Get Smarter About Money.
• If you are a University of Toronto student and want to plan for your tuition fees, take a look at U of T’s Financial Planning Calculator. Most of the schools have a similar tool.