Student (And Lifetime) Financial Health Begins With A Budget

Budgets. Yawn. Why bother? I prefer the uncertainty and anxiety of never knowing that I have enough money to pay rent (said no one ever)?

My Paris Budget

So, I created my first budget when I went to Paris during my junior year in university. I had limited funds, an exchange rate to manage and I was too proud to go to my parents if I fell short. My simple budget gave me security, flexibility, and confidence while building mindful spending and other financial health skills that would pay dividends for the rest of my life.

Here’s what my budget for February 1987 looked like. First, I wrote down all my spending daily. I coded each expense in one of eight categories (“N” for nourriture (food), “L” for livres (books), etc., in French Francs:

Next, I added up all the spending in each category. The biggest was food (N). This was France after all! As you can see under Noté, I was a good boy that month, with recorded spending of 2,714F vs. a 3,800F budget for the month:

Handling Imperfection

However, my record-keeping wasn’t perfect. When I tried to reconcile my recorded spending (2,715F) with the changes in my cash and bank accounts (2.857F), I was missing 142F. This is the reason for my third column, “ponderé”. I rounded up and added to categories like food and amusements where I likely forgot to record some spending, to create more accurate estimates.

You can see how I kept track of my spending progress during the month below so that I wouldn’t go over:

Finally, I tracked my spending over the year so that I could make sure that I didn’t run out of money during my year away.

Why did it work?

My budget was free to create and manage: nothing to download! It didn’t take much time: a few minutes nightly and a half-hour at the end of the month.  It worked for me: I didn’t run out of money. Why?

• Mindfulness: It helped me be deliberate about my purchases. Since I was writing nearly all my spending down, I was naturally less inclined to make impulse purchases.
• Mental accounting & pre-commitment: Creating separate and fairly arbitrary categories made it easier to spend less because, if I over-spent Amusement, I knew I would have to take the time to reallocate money from another category.
• Flexibility: That said, I was kind to myself. If I nevertheless overspent Amusements, I compensated by spending less on Books (livres) or Food.
• Social Norms: I surrounded myself with other students who were living on tight budgets. This reduced the pressure to spend excessively because it was easy to conform to the low-cost activities of my friends.
• Strategies, not Wants vs. Needs: I didn’t make any arbitrary distinctions between wants and needs, with the presumption that wants are frivolous and optional. This is where most budgets go wrong. Instead, I considered social, cultural and culinary activities all legitimate needs (since they were all related to why I was in France in the first place) and found ways to meet them cost-effectively. For example, when I went to a cafe to philosophize with a friend, we didn’t order much beyond tea and a snack.

To be fair, my budget also worked because I had saved aggressively during the previous summer, the tuition that year was just a thousand dollars, the university cafeteria system (“Restos-U”) was cheap, convenient and filling. So, I had more than enough money for necessities and some fun things too. I see I went to a museum, the theater and bought flowers for my friend Guendalina that month.

Source: CFPB; The Noun Project; Decision Fish

Budgeting for Financial Wellness

Thirty-one years later, on #finhealthmatters day 2018, I see the budgeting exercise was a habit that stuck with me and allowed me to continue to: 

1. Control my daily and monthly finances;
2. Be able to handle an unexpected expense or income loss;
3. Keep on track to meet my long-term goals. These include paying off student loans, earning a graduate degree, buying a home, having children; and
4. Have the liberty to make the choices that bring me happiness (like that trip we took with the kids to Paris).

This is the CFPB’s definition of financial health. And college is the perfect time to build financially healthy habits with a mindful, flexible and kind budget.

This article is a slightly edited version of the original published April 25, 2018, at forbes.com here.