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July 2, 2019

Why Is It Easier to Think Monthly When Looking at College Costs?

Consider your monthly budget pie when your student is in college

Consider your monthly budget pie when your student is in college

Consider your monthly budget pie when your student is in college

College costs are mounting.  It's important to figure out how these costs will affect your  family's budget.  So take some time to determine how to budget for it.

Budget experts have encouraged consumers to think about budgets on a monthly basis, especially since there are so many large ticket expenses that require payments approximately every 30 days. Whether you are paying a home mortgage or paying rent, payments almost always are due monthly. Health insurance premiums, car payments, utilities, and more expect payments monthly. Even discretionary items like Netflix subscriptions, gym memberships, and Blue Apron boxes are priced in monthly installments.

So how do you fit your take home pay into a monthly budget?

Consider the 50/30/20 budget concept.

Fifty percent of your budget should go to needs, or essentials.

Needs are things like housing, food, health and car insurance, and minimum payments on things like studenet loans, car payments, and other forms of recurring debt. If you owe child support, this would fit into this needs category. The concept here is that all your essentials to live, anything that will take the biggest hit to your credit score, and the payments on big debt items should be included in this 50 percent.

Think about what fits in this needs area for your budget when your kid goes off to college. If you are paying college costs directly to the school, this amount becomes an essential item of you budget. If you borrowed a private parent loan while your student is in school, your most likely have an interest only payment only payments required while your student is in school that should be included in this essentials category.

Thirty percent of your budget should go for wants.

We all want to watch our favorite show so we subscribe to Hulu, Starz, or cable tv. We all want to stay in shape so we become members at a gym, sign up for yoga classes, or join a club volleyball team. We all want a break so we go on vacation, schedule a massage, or buy a time-saving gadget. These are all wants. You don’t need these to survive physically and maintain yourself financially.

When your student is in college, there are lots of items to add into this wants category. The plane ticket home for Thanksgiving, the spring break trip with friends to the island, or joining a fraternity or sorority are not essential to the college experience, but they are desirable. Make certain you discuss what these potential items are so you are not surprised with a $350 club sport fee and travel costs to games.

Twenty percent of your budget should go to savings and debt reduction.

This 20 percent should be seen as a part of your future plans. Everyone should be planning to retire one day, have a rainy day or emergency fund, and to save money for college costs.  If you are saving for that dream house, this should be included in this category. Plus, if you have debt like student loans, credit cards, or something else, consider using some of these funds to accelerate repayment of this debt so that you can then focus more on the savings tomorrow.  

During your students in school period where you are paying college costs, remember to continue to balance your long term goals. If your employer matches retirement some or all of your contributions, continue to maximize this to the extent that you can. Also, if you borrowed a student loan that requires no payment while your student is enrolled, consider using part of this category of funding to pay off accrued interest. This is a form of debt reduction.

If 50/30/20 doesn't seem to fit your priorities, consider a variation like 60/30/10 or 65/25/20. Remember monthly budgets is meant to help you to reach your goals (like paying for college costs), limit your financial stress, and help you align your priorities.

Photograph of Colleen Krumwiede
Colleen Krumwiede
Co-Founder & Chief Marketing Officer

Colleen MacDonald Krumwiede is a financial aid and paying for college expert with over a decade of financial aid experience at Stanford GSB, Caltech, and Pomona College and another decade at educational finance and technology companies servicing higher education.  She guides go-to-market strategy and product development at Quatromoney to transform the way families afford college.

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