Budgeting tips for students: How financial literacy can set you up for life
Students who effectively budget and take control of their personal finances will develop life skills that will set them up for future financial stability and wellbeing. Photo credit: Alyssa K. Faoro
Updated August 25, 2023.
While the topic of money management can cause your eyes to glaze over, you owe it to yourself to understand the fundamentals to take control of your financial life.
As a student it’s important to establish good money habits that can serve you for life. When you’re balancing rent or residence fees with tuition and living expenses, it helps to know the basics. Essentials like living within your means, distinguishing between wants and needs, saving money, budgeting and planning to pay off any student loans can support your financial well-being.
We asked Coleen Clark, Ted Rogers School of Management professor emerita and Chang School Financial Planning Certificate coordinator, to highlight some areas of focus for university students. Read on to get your balances in check.
Curb social media use and curb spending
Studies show that consumers who are influenced by social media are more likely to spend more on purchases. Photo by Karolina Grabowska on Pexels
Social media has been shown to strongly influence spending habits, and with endless influencer and celebrity promotion, it’s easy to get lured into conspicuous consumption, credit card overuse and impulse buying. Try limiting your scroll time or follow accounts that provide information on effective money management.
Learn the life-long skill of budgeting
Budgeting may not be the most exciting chore, nonetheless, Clark emphasizes the importance of knowing what you plan to spend each week, month, semester and year.
“You might want to sit down with one or two friends to brainstorm sources of revenue and expenses. Then keep track of every dime you spend regardless of how you pay for it – cash, debit or credit card – for a couple of weeks to see if your budget is reasonable and where you can cut back,” she advises.
Clark also makes an important distinction when it comes to costs. “Tuition is paid once a year and books at the beginning of the semester, while other costs are ongoing like rent, transportation, food, entertainment, coffee, etc. After a couple of weeks of detailed tracking, you should have a general idea of whether you are sticking to your budget,” she says.
Students can also take advantage of free online resources like the Budget Planner tool (external link) from the Financial Consumer Agency of Canada.
“It isn’t that there is a correct number of coffees you should be buying each week. What does matter is that you have made a conscious decision and are aware of how much you spend on these items, whose amounts are often quite small but can add up every four months,” Clark reminds us.
Another important thing to keep in mind, she says, is that your financial position might be different from that of your friends who may have more or less resources at their disposal. “This is the beginning of learning to live within your means. Probably the most important thing you can know about money management.”
Toronto Metropolitan University Libraries published an in-depth guide, the Financial Literacy Student Handbook (external link) , a useful tool for students that includes a sample budget template, helpful information and a list of resources.
Understand credit scores and build a credit rating
Credit cards are an excellent way to build a credit history and establish a credit score--if used responsibly. A poor consumer credit score can not only affect your ability to obtain loans and credit cards, but also impact your ability to purchase or rent a home, and sometimes even limit employment opportunities.
Credit cards can build good credit and establish a credit score that can help you secure more credit in the form of loans and mortgages in the future. Photo by Blake Wisz on Unsplash
It is extremely important to make the minimum payment on time. “By using a credit card, you are building a credit rating and failure to make the minimum payment each month on time will cause you to build a negative credit rating,” says Clark.
Two things to keep in mind are that it’s not only important to make your monthly payments but to avoid carrying over a balance if possible. Making only minimum payments can end up costing you much more than the original purchase price in interest alone. Moreover, carrying high balances can affect your credit utilization ratio (the amount of revolving credit you're using divided by the total credit available to you) which can make up almost a third of your credit score and make a real impact on your credit standing. Payment history impacts your credit score the most, so make credit card payments on time every month. This also helps you avoid late fees.
There are also free online tools that can help you manage your credit cards like the Credit Card Payment Calculator (external link) .
Find low-cost credit cards and bank accounts
Clark notes that students can often have a hard time finding bank accounts that have low rates; that is, no fees or low fees for students. Entry-level credit cards may come with minimal credit limits. She suggests taking the time to do your research to find no-monthly fee banking accounts and credit cards without annual fees.
Try to set aside a minimal portion of your income into a high-interest savings account which can help if you’re ever in a bind. This could be 5 or 10 per cent of your monthly income. And take advantage of student discounts, scholarships or student benefit plans (external link) . You can also buy and sell used textbooks (external link) to keep more money in your wallet.
Estimate the financial cost of dropping courses
Clark advises, “treat your time at university like a job.” This is, make going to class and being prepared by doing the assigned readings and homework your focus. This can mitigate any issues of dropped or failed classes which can extend your time at school and dramatically increase your expenses.
Take a personal finance course
Students who would like to learn to better manage their personal financial planning can take CFIN 562 Personal Finance through The Chang School and is a Professionally Related course in some programs. The course is geared toward students who may not have a strong math ability or interest and provides informed support to middle- and lower-income students.
Take advantage of available resources
Toronto Metropolitan University Libraries offer a suite of resources and links to help students learn the fundamentals of financial literacy. The site includes links to a Loan Repayment Estimator Tool (external link) and OSAP Repayment Calculator (external link) for students that want to start planning how to pay back student loans. Keep in mind that interest on student loans does not start to accumulate until after graduation.
For some people, ‘retail therapy’ or shopping to ease feelings of anxiety, stress or depression through ‘comfort’ purchases can also lead to impulse buying and overspending. Instead, take advantage of the Student Wellness Centre to help manage any mental health and well-being challenges and mitigate the added pressure of financial stress from overshopping.
Keep your money
It is important for students to understand how to manage their money and take control of their personal finances – critical skills that will pay dividends after graduating and throughout their professional lives. Learning and practising these skills now will help to mitigate financial stress and anxiety, maximize financial resources and set you up for stability and success in the future.
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