What Every College Student Should Know About Finances Part 3: Spending Your College Money

Welcome back to part 3 of our series on What Every College Student Should Know About Finances and we are glad you enjoyed  Part 2: Financial Concepts 

• Written by Marjorie Daley, author of the New Adults’ Guide to Basic Finances.

Table of Contents

1. Scholarships, Grants, and Loans
2. Work-study, Jobs, and Other Sources of Income
3. Budgeting
4. Balancing Your Checkbook
5. Cutting Costs
6. Summing It Up

Suddenly receiving money can lead to mindless spending and suddenly your college money is gone. Plan before you spend. 

In the next several sections, we are going to discuss finances. Since at least 50% of the readers have no background in basic finances, these will be broken down and discussed clearly. We’ll also discuss the money that is specifically for college expenses and the money that you will live on.

1. Scholarships, Grants, and Loans

• Use these funds for the purpose they were granted.

If you have college scholarships, grants, and/or loans, you must keep track of how you spend the money. If the money is sent directly to the college’s financial aid department, they will apply the money to the appropriate expenses and provide you with the tax document. If it is sent to you, you must keep track of how you spend it. Otherwise, the IRS can tax your grants and scholarships as income. What you spend on qualified education expenses becomes education credits and must be claimed on your taxes.

According to the IRS website, qualified educational expenses include tuition, fees, and other related expenses. However, it does not cover room and board, insurance, medical expenses including student health fees, transportation, and personal, living, or family expenses. You cannot use the money for sports, games, hobbies, or non-credit courses UNLESS they are part of your requirements for your degree program. Because the federal tax code seems to change on an annual basis, spending money to talk with a Certified Public Accountant (CPA) is money well spent. They can advise you about where these funds can be spent.

If you are getting money sent directly to you, consider setting up a separate checking account just for your educational expenses. Not only is it easier to track where the money is going, but it eliminates the accidental or deliberate expenditure of that money.

Whatever you do, DO NOT take the money and spend it on a new car, clothes, electronics, and other wants.

2. Work-study, Jobs, and Other Sources of Income

• Try to pay upfront for your expenses, not take out a loan.

Work-study and a job is the rest of the money you make or are given can be used for other expenses. This is where the concept of money management becomes important. Most of the rest of the article is going to deal with handling this money so that you can survive college without too much debt.

The first step is setting up a budget.

3. Budgeting

• Budgeting helps you track where your money is going and control your spending.

Many people think of budgeting as a dirty word. It is actually one of the few ways that you can track your income and expenses to make certain that you are living within your means. It is extremely simple to spend more than you make and that leads to debt. Budgeting can be as complex as knowing where every single penny is going to as simple as setting up what percentages you are going to spend on what categories and sticking to it.

If you learn to budget now, you will be far ahead of your fellow students now and equally far ahead of your fellow workers once you graduate. Monitoring your expenditures is necessary to help you graduate with as little debt as possible.  Later in this article, you will find sample budgeting worksheets for college students.

Wants and Needs

• Wants are necessary for survival. Needs make it more pleasant. 

The first step to budgeting is not to rush in and set up a spreadsheet or buy an app. The first step is identifying wants and needs. Simply put, a need is something that keeps you alive. A want is something that makes being alive more pleasant. Needs include shelter, food, a minimal amount of clothing, transportation, and medical care. Wants are not quite everything else. After the pandemic, internet access moved from a want to a need and will probably continue to be a need. A need becomes a want if you are insisting on a new car when a used one will serve just as well, or if you eat out instead of learning to cook and enjoy leftovers.

Getting Ready to Budget

Now that you understand the basic difference between a need and a want, write down every place that you spend money. I’ll include a list, but it certainly is not exhaustive.

There are at least two different ways to approach budgeting. One is to see how much you need to make to cover expenses and the other is to see where you spend your money. I am going to use a little of each method.

Let’s start with living on campus.

Living On Campus

If you fill this table out, you will have four different totals. One is your total income to cover college-related expenses; then monthly income; then annual expenses; and finally monthly expenses. Note that there are extra spots under the monthly expenses. You may have more needs!

Related:

• What Every College Student Should Know About Finances Part 4: Legal Concerns
• What Every College Student Should Know About Finances Part 2: Financial Concepts