Skip to Main Content
Idaho State University home

How to Budget as a College Student

October 19, 2018

Let’s face it, saving is tricky and simply living is pricey- especially as a college student. With how high the cost of living is in 2018, saving seems near impossible and even imagining how to pay off your student loans may make your brain freeze and say ‘no way’. But it’s not impossible! Many people before you have posed this very same question and many experts have advice to offer when it comes to saving and paying off debt.


As a recently married student, I’ve had to quickly jump into a life where I no longer live with my parents, under their income, eating the food they provide, living in the house they pay for- ultimately I, like many of you, am now “adulting”. As a fellow student and person that is also new to this whole concept, I’ve done a lot of research when it comes to budgeting and living financially comfortable on a student’s income. And, well, I’ve become quite passionate about it, I love this stuff! I’ve read books by professionals, I’ve taken advice from my parents and others, and I’ve learned a few things on my own too. Here, I want to share some of the most valuable things I’ve learned and show you what I’ve found works for me as a student- it might just work for you too.


Dave Ramsey is a man who built a financial business after losing everything he had to debt and is dedicated to helping others shake off the chains that debt creates around people. He has written seven best-selling books about financial advice and how to gain financial peace in your life. He advises to those just starting out, to start with 7 Baby Steps and the biggest key to these steps is avoiding debt at all costs and paying off what debt you do have as quickly as you possibly can. The steps are as follows:


1: Save $1,000 to start an emergency fund

2: Pay-off all debt using the snowball debt method (which we will explain shortly)

3: Save from 3-6 months worth of expenses for emergencies (Separate from the first $1,000 as this will be a more long-term emergency fund if, for example, you lost your job.)

4: Invest 15% of your household income into Roth IRA’s and pre-tax retirement funds

5: Save for your children’s college fund (unnecessary for some)

6: Pay off your home early

7: Build wealth and give


Step One: Save a $1,000 Emergency Fund

Some of these steps aren’t very relevant to college students so we’ll focus on the first four steps. The first little step to Baby Step One, starting a $1,000 emergency fund, is to budget. Let’s assume the position of an average Idaho State University student working in a Career Path Internship (CPI) position for $9 an hour at 19.5 hours a week. On a side note: CPI positions are actually a great way to earn money while getting some beginning experience in a field of your choice. As a CPI, your paycheck would come out to $320 after taxes. We’re going to assume that this student lives off-campus, they live with a roommate in a two bedroom apartment where the average cost is $626 and their landlord pays all the basic utilities (water, sewage and garbage). The cheapest internet service offered in Pocatello is CenturyLink which offers a plan and a leased router for $55.60 per month. As for groceries, according to writer and blogger Todd Christensen, who writes for the non-profit organization Debt Reduction Services, says that “...households should try to spend between $75 and $125 per person per month in their household on groceries.”

We’ll assume that you budget $100 a month for groceries and for electricity, there were no average numbers for a one bedroom house for a single person so we are going to crunch numbers under the assumption that you use between 300-600 kilowatts, meaning that, at most, your electricity would be $51 a month (and split is $25.50 between roommates). This brings your total cost to $466.30 per month with groceries, power, rent, and internet . (We are not including phones or subscriptions to various services or vehicles and car insurance as those can vary widely from person to person, are considered luxuries, and I wanted to only provide a general model that could be tailored to your needs.)


Let’s see a visual model:


Rent: $626/2 = $313

Groceries: $100

Electricity: $51/2 = $25.50

Internet: $55.60/2 = $27.80

Total Expenses: $466.30


Net Income: $640


Bills: $466.30

Total Discretionary (Spendable) Income: $173.70


As you are paid every two weeks, your monthly net income will be $640 and subtracting your bills gives you $173.70 at the end of the month to use. A recommendation I would give centers around the financial rule known as the 10-10-80 rule which is to save 10 percent, give 10 percent and use 80 percent, although for our purposes we will adjust that a little bit because by using only $466.30 per month, you’ve only used about 63 percent of your monthly income, leaving 37 percent unassigned afterwards. A method that you could use is after paying the bills with the 80 percent, whatever is left over, you give yourself 10 percent of that to spend and the rest goes into savings.


Spendable Income: $173.70


Savings: 10% (%17.30)

Remaining Income: $156.40


This remaining $156.40 would then go to your “luxuries” such as your phone, a car plus the car insurance, or whatever other pertinent item you are saving for (like a car or your textbooks/tuition next semester).


Budgeting can help you achieve Ramsey’s first Baby Step: Saving $1,000 to start an Emergency Fund. With budgeting and saving the $156.40 every month (and not following the 10-10-80 rule), it will only take you 7 months to save that $1,000 emergency fund. Budgeting can also help in way of general savings. If you have something else you’ve got to save up for, then break that bad boy into two and put half of your remaining money into an emergency fund and the other half into a savings account which will equal out to $78.20 in each account. While this may not seem like a lot, it will build up and the key is to not overspend. Another suggestion is to have separate accounts for these different things. Have checking account that is your spending account where you deposit the money you can spend on whatever you’d like (remember that 10%? That’s where this will go). In addition to that, have a separate account that you pay your bills from. Most places to direct deposit and allow you to set up an automatic payment system that will just automatically take it out for you as long as the money is there. If you’re saving up for a couple of different things, set up two savings accounts on the same account and allocate the money as you need to. For example, create an account for your “Emergency Fund,” and account for your “Tuition and Textbooks Savings,” an account for “Bills,” an account for “Fun Spending,” (for those nights your friends want to go out or you really need a Starbucks). Savings take time and hard work but the financial security that you have by the end of it, is well worth it.

Another big key to this step is to save as much as you can, when you can. You might consider picking up a second job or doing odd jobs to earn more money or even possibly having a seasonal position to take up empty hours during different seasons.


Step Number Two: The Snowball Method

Let’s talk about step number two: pay off all debt using the snowball method. Well, what is the snowball method? This is yet another one of Dave Ramsey’s methods and for this step, you list all your debt from smallest to largest, and pay as much as you can towards the smallest debt you have, make minimum payments on the rest and when the smallest debt is paid off, rollover the payment to your next loan until that’s paid off and so on. Three debts that college students are likely to have are car payments, credit cards, and student loans so that’s what we’ll use for this example.


Let’s say you’re still a CPI and you’re still in the same situation as before with a usable income of $156.40 and you’ve already saved that emergency fund. you’ve just bought a used car from a dealer which is a 2014 Honda Civic for $10,000. You took out a loan for $5,000 from Idaho State University Credit Union and paid the other half in cash. If you want to pay off that loan in eight and a half years, your monthly payment would be $56.17 per month leaving you with just over $100 in disposable income a month. You also have $500 in credit card debt with an 8.35 percent interest rate also from ISUCU. Your minimum monthly payment would be $20 per month for three years but if you wanted to pay it off in six months then your monthly payment would be $100 per month. So let’s assume that you’re in the same situation as we talked about before where you live in a two bedroom apartment and split the bills with a roommate and your total bills every month end up being $466.30. Remember, this means that you have $156.40 leftover. Your debts from smallest to largest will be your credit card debt, car loan, and student loans. You pay off your credit card in that six month period and rollover that payment to your car and start paying off that loan which means you’re paying $156.19 on your loan which means you’ll pay it off in just over three years instead of eight and a half. Be sure to put these towards the principle rather than the interest. The principle is the amount of the loan without the interest tacked on.


Step Three: Save 3 - 6 Months Worth of Income

So let’s talk about step number three before we move onto student loans. Step number four is something you can do while still going to college which is save 3-6 months worth of income for events in which you lose your job or aren’t able to work for a period of time. The amount for 3 months worth of income would amount to $1,920 and if you saved all of that $156.40 after you’ve paid off your debts, it would take you about a year to save up that amount and for 6 months, two years.


Pay Off Student Loans

Let’s move on to getting rid of student loans. One of the first things to do is to stop going into more debt and stay debt free, if possible. Although this piece of advice is very important, there is also a caveat to it. Debt is not recommended, because it is too often used irresponsibly. But, if you have a designated and achievable plan to paying off a minimum and necessary credit purchase, then that’s okay. In reality, although debt can be really bad, it is also really necessary in some cases. For example, most people would not be able to pay cash for a house, especially their first house. In fact, most people may not be able to pay cash for a car, unless it is a really inexpensive used one. So, in order to make these important purchases in your life (because ultimately renting or leasing is a waste of money because you are not putting your hundreds of dollars per month toward buying anything… when you could be if you bought instead of rented or leased) but... In order to make these important purchases you have to have a good credit score. And in order to have credit, you need to have had some debt. Debt that you have taken out responsibly and paid for responsibly. This could include having a credit card, such as an Amazon Prime card (which also gets you spendable points in cash) to buy things that you already have money and have budgeted for like gas or groceries. Or, taking out a small six months no interest loan on new and necessary tires for your car and then paying that loan off before the six months has been reached. But, using your credit card or loans to buy unnecessary things or things you have not budgeted for is not responsible. School is necessary, and many have to take out loans to pay for it. But school is also one of those major investments that doesn’t have to be paid for in debt. By saving beforehand and over the summer, working hard academically, applying for scholarships, and FAFSA- are all ways you can avoid graduating with a huge chunk of debt.

For example, throughout your undergraduate degree, don’t take out any student loans unless you absolutely have to which may seem difficult but we encourage you to seek out financial help in way of scholarships, grants, and FAFSA.

Let’s assume that you’ve accumulated $20,000 in student loans, you’ve graduated college, and now you’ve got your dream job that pays $31 per hour so you’ve got to start paying those back. At your job, your income per month is $3,664 after taxes and you’ve agreed to pay back your loans over 10 years which is about $2,000 a year. But to pay it off in two years, your monthly payment would only be $833.


Step Four: Invest 15 Percent

Finally, step number 4: Invest 15 percent of your household income into Roth IRA’s and pre-tax retirement funds. Not all companies have these in place but if they do, make sure to contribute to them as these funds are what will support you when you’ve retired. If your company doesn’t offer a savings plan like a 401K, make one yourself. There are a number of ways to invest money on your own and use sites like Vanguard or others to make investments, or visit a local stock broker and talk about your options.

Finances and saving can be rough but as long as you stay within your means and establish a consistent budget, you can get yourself out of debt in relatively no time at all. Before we end, here are a couple of last minute tips to managing your finances and your debt.


1: Don’t accrue more unnecessary debt. Use debt in the beginning strategically and responsibly to build up a positive credit score so that you can buy a house and a car. Once you have those two things paid off (which is absolutely possible even at a young age) then debt is no longer necessary. You can keep using credit cards to maintain your credit score and buy things you have the cash for already like groceries and gas. But, don’t make debt your means for living.

2: Only buy something if you have the cash for it. That way, you’ll avoid using money you don’t have.

3: Live within your means.


Having no debt can give you great peace of mind and while it may seem impossible, it is absolutely possible. You don’t have to live on debt and you don’t have to make payments the rest of your life. Be strategic, plan, and pay off early, so you can have that peace of mind while you are still young and enjoy your life. Happy budgeting!