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Budgeting 101 for the College Student

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Drafting a budget will underscore two basic points for your student: Everything has a cost and money doesn't drop from the sky.

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Many college students have little or no experience in handling money and don't know the basics about drafting a budget and sticking to it.

That means a chemistry whiz or a Jane Austen fanatic can be a real clunk-head when it comes to managing money.

"Parents and kids need to have 'the talk' about money so they can define all college-related expenses," says June Walbert, a Certified Financial Planner at USAA Financial Planning Services. "That includes tuition and fees as well as discretionary spending such as movies and dates. Parents and the student need to decide who is responsible for what expenses – everything right down to the laundry detergent."

For some students, sticking to a budget can be more daunting than finals. But it doesn't have to be this way if you discuss the basics, establish guidelines and schedule monthly checkups. There's no reason you and your student can't swap spread sheets via e-mail once a month.

Start with the basics when drafting a budget. Sharpen a pencil with your student and define the monthly cost of a college education. Include the cost of tuition, fees, books, room and board, utilities, transportation, food and extra-curricular activities. Urge your student to buy used books and scrimp whenever possible.

Extra-curricular activities might include intramural sports, school-related trips and special interest clubs. Entertainment includes the usual undergraduate diversions – movies, eating out with friends and The Big Game. Warning: Your student is likely to understate non-academic expenses for all the obvious reasons. Try to get an accurate figure so your student isn't scrambling for cash at the end of the year.

Pile detail upon detail – cut all expenses as fine as possible – so your student understands the cost of attending college.

For example, if your student has a car, transportation expenses should include monthly payments, gas, routine maintenance, insurance and parking. If your student won't have a car, include the cost of public transportation or a bicycle. (No kidding – even small expenses add up, a point probably ignored by your student.)

You'll send your student off to school with boxes of stuff, but don't forget the need to purchase mundane things during the academic year. Personal care items should include ho-hum things like razor blades, toothpaste, makeup, cotton balls – all the stuff no one thinks about until it's time to buy it. Remind your student that little things will knock the budget out of whack if you don't plan for them.

Drafting a budget will underscore two basic points for your student: Everything has a cost and money doesn't drop from the sky.

Next, you and your student should determine the source of the money needed to cover the monthly expenses. Track the amount from various sources, including scholarships, grants, student savings, on-campus jobs and, of course, The Bank of Mom & Dad. Make sure your student understands your contribution.

If the budget doesn't balance, you and your student must answer two basic questions: What spending cuts can be made? Where does the extra money come from?

Be sure to have your student spend a significant portion of summer earnings for tuition and books. This will underscore the cost of a four-year degree and give the kid a stake in completing the coursework. Leave some of the summer earnings for fun – the amount should be open to negotiation. If your student plans to work part-time during the academic year, decide how the money will be split between school and personal use.

"If you don't discuss finances, your student will end up in debt – there's no doubt about it," Walbert says. "And when those heads are gray, your student will still be trying to dig out of debt."

Schedule a monthly review of your student's budget and make changes as needed. Keep the discussions informal and relaxed – this is a chance for your student to learn about money. Remember that you're an instructor – not an inquisitor. Your student will make mistakes, but with your guidance they'll be little ones and won't be repeated.

"College is the time for our kids to make financial mistakes – not when they have a $10,000 limit on a credit card and overspending can ruin their credit rating," Walbert says. "We want them to make their financial mistakes in college so they'll learn from them."



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