savingThis fall my brother is about to start his first year at college and asked me the other day about what to do about getting his accounts set up and how much money he’d need. Now my brother is just about the coolest kid around; as a fifteen year old straight guy in high-school, he went to all of the meetings for the GSA I started and even designed the club t-shirts, so of course I was willing to help him try and get his finances organized so he’d be prepared for whatever freshman year could throw him. This will be the first time he’s had to worry about money since someone else has always managed his accounts, so he was pretty much starting from scratch.

Setting Goals:
It helps to have concrete goals to save for as motivation. Otherwise, it’s easy to cave in to the constant barrage of advertisement to buy stuff, stuff and more stuff. I’m fighting the urge to run out and buy a fingerboard because I know that I can build something comparable for a fraction of the cost. Having a specific goal to save for gives you something to visualize when you’re deciding whether or not you’re going to make a purchase.

Building A Budget:
Once you know why you’re saving, the next question is how. If you’re trying to develop a post-college budget pretend this is a choose your own adventure and skip ahead. If you’re about to start college there are a lot of variables you just don’t know: for instance, I was able to find and hold down two on campus jobs, while my sister didn’t meet the criteria for any on-campus jobs and is unwilling to bar-tend, because it would involve late night walks home alone (even with people, walks home at night aren’t a good idea in her area). Are you going to be getting take out a lot because the food is lousy? How about travel costs? The first thing I told my brother is to plan on not having any stable source of income, and try to make up for it doing odd jobs whenever possible. He’s not too fond of this part because it means picking up hours during the off-time in summer to create a buffer to deal with that miscellaneous or emergency expenses that pop up. I had to fly home from my semester abroad at the last minute to attend a memorial that I wouldn’t have been able to make without an adequate buffer.

It also helps to try and anticipate any major expenses. In his case, he wants a longboard for getting around campus and then there’s the obvious drain on the account that is buying text books. This fits under the category of anticipate and plan for expenses. This can be as simple or complex as you need it to be, and is catered to your needs.

There are some good articles out there for how to set up a budget–The Simple Dollar has a good primer and our own Lana has a highly detailed chakra money balancing (budgeting) system that’s part of Building Wealth Consciousness from Within –but really, setting up the budget is the easy bit, in my opinion. I’ve been trying different budgets and budgeting methods for myself for years. The problem is finding a budgeting method that works for you. No matter what your budgeting method or income level, if at all possible, have an emergency fund available. Even if you don’t think you’ll need it, having the funds available if a situation arises can give untold piece of mind. Though taking a last minute trip home was expensive, I was glad that I had the option available.

Reverse Budgeting:
As a kid I had a color-coded Excel chart that lived on the refrigerator with a list of daily and weekly chores that I had to do in order to receive an allowance. At the end of each week, the sheet would be replaced with a new one, and every month or so we would add up the check marks under each section and calculate how much allowance we had earned. Before I was given the money though, the total was divided in half and one half was put into a savings account, the rest being mine to do with as I pleased. It shouldn’t be surprising that this is the method I stick to now (though the percentages are a bit different) because it’s what I grew up with. I like it because I feel a lot more free to be social, without worrying as much about the subsequent expenses, while putting saving first.

Combining The Two:
These two methods are the two fundamental ways of saving: you either save first and pay expenses after, or you restrict your spending and deposit the rest. The former requires a lot of willpower and the ability to anticipate weekly or monthly expenses, while the latter requires the ability to set and meet savings goals.

If you choose to develop and stick to a budget, it’s good to have some idea of what your typical expenses are in the time frame you’ve allocated, as well as creating a budget for unanticipated needs or emergencies. Again, Lana’s seven chakra list is pretty thorough. For reverse budgeting, try setting the bar slightly higher than you think you can manage, because it can act as motivation to restrict purchases.

There’s also nothing that says you can’t have a combination of the two. I love reverse budgeting, where I allocate a certain percentage of my income straightaway to savings, but I also have budgets for the remainder. I like this method because I don’t get as much of the guilt that comes with breaking with the pre-established budget, but it also gives me further incentive to save. I view the budgets, which are generally extremely low, as challenges to see just how little of them I can use. Two of my budgets can be classified as food/drink (in a social context) and entertainment.

For my food budget, I designate nights to not drink, and always carry a snack and water or juice with me so that I’m not stuck buying overpriced food to take the edge off my hunger. Now when I make plans with friends that involve food or drink, I’m spending less money than I would have before. I’ve also transitioned from going to the theatre to watching DVD’s at home or at friends’, which is even cheaper if you take advantage of your library’s selection. (Unfortunately their selection isn’t always stellar, particularly if you’re looking for LGBT movies, but if you have a weakness for mediocre old films, it works out.) At the end of the budget period (mine being one month) whatever I didn’t spend gets dumped into my savings account or emergency fund.

Getting Creative:
One thing I love about trying to live on less (and let’s face it, with the sheer amount of work required in college, who has time for working long hours?) is that it forces you to get creative and try to live on less. Now I’m not advocating Fabreeze as a laundry substitute because laundry prices are high at school, or living off of Ramen because it’s cheap. Instead, try things like repurposing stuff you have (a frying pan can work just as well as a bread tin in a pinch when baking bread), or cultivating a money saving habit. I hate sewing but spending tv time patching my pants with wonderful rainbow fabric saved me from going out to buy two pairs of pants to replace the two pairs of threadbare pants that I had. The barter system is also a fun thing to play with. I got the best haircut I ever had by asking a friend to cut my hair for me and cooking her dinner in exchange.

Keeping On Track:
How you create your budget depends a lot on how you think about saving and what your goals are. Having grown up with reverse budgeting, it’s the method I am most drawn to but not everyone’s the same. Either plan requires time and motivation to make it truly effective, whether its a commitment to clipping coupons or shopping around for the lowest price.

Last of all, a method for tracking expenses is vital. Traditional budgeting or reverse budgeting, being able to see where your money is going is important. It can be really surprising seeing where you’re money is going and looking at a list can help determine where you can spend less money. You can use anything from a simple spreadsheet to a program specifically designed for it. I use and love the website Buxfer, particularly because it offers charts so I can see where my money is being spent as well as being able to see the net total in my accounts. Not only that, but it doesn’t require any specific account information other than the balance. You can even create names for your accounts like “Kitty” or “Duck,” as long as you can keep track of which is which. No matter what system you come up with, the important feature is consistency.

Of course, not everyone needs such a fundamental tutorial, but if you’re just starting out or your current system is not working perhaps approaching from a different angle will make a difference. If you have any other ways you went about setting up your budget, let us know in the comments.