By Shuer Luo - Duke University
Many people now are used to consume on credit. This is not necessarily a bad thing, but you would like to create a personal budget for emergencies and also for some long-term goals. Follow these steps and tips, start it now, and you will thank yourself later!
1. Set your goals
Set short-term goals (1 month, 2months, half a year, a year, etc.) and long-term goals (5 years, 10 years, etc.). Don’t set unrealistic goals, since they will only discourage you and hinder your progress as a result. If you think a goal is to big and abstract, try to break it down to several smaller ones among shorter periods.
2. Rank your goals
Rank your goals in terms of urgency and importance. Discuss with your family members and friends, because sometimes you might overlook some crucial factors. This helps you make decisions about the order of executing your plans.
3. Estimate your income and understand your expenditure habits
As a student, you might not have a big amount of regular income, but still try to record the money you’ve earned and will earn, including scholarships, money from parents, and so on. On the other hand, you should review your expenditure history in the past three months through bills and organize them in different categories. This gives you a general sense of your average monthly expenditure and the balance of your budget. Remember to keep track of your income and expenditure throughout the process as well.
4. Control your expenditure
Compare your expenses in different periods of times and try to think about what are the expenses that you can reduce or even cut, for example, dining-out frequently, and what you should increase, for example, insurance.
5. Stick to savings
After you understand how much you would normally spend, put that amount of money directly into your savings account when you receive your money source weekly/monthly. This is a crucial step for you to build up on your personal budget.
6. Limit overdrafts
Every time you want to buy something on overdraft, ask yourself: do I really need this? If so, can I wait until I have money in the next time period? This helps control your impulsive consumption.
7. Do not blindly follow others
There are many ways of personal finance out there, including investing in bonds, stocks, antiques, etc. Only do it when you think you fully understand the mechanisms and justifications behind each investment. Blindly following others will leave you on a passive stance with huge risk of being held up.
If you spend 60 hours a week on schoolwork and activities, just think about spending 1 hour on the above tips to get ahead in the actual real world!