•  Have some fun with this, tape record yourself, write or draw a picture of yourself 10 year, 20 year 30 years in the future. Identify those things you wish to accomplish, both professionally and personally. What are the three words that you want to be used when describing yourself 25 years from today.
  
• Create a time line for your goals, i.e. what year do you expect to graduate, get married, have children, buy a house, but a care, start a non-profit to serve the community, etc.
  
• Now place a dollar value on your goals. For example, raising one child today to the age of 18 will run between $166,000 and $220,000 (this does not include college) and the average price for a new car is approximately $21,000.

A Balanced Budget is Simply a Thoughtful Spending Plan for Success
A budget (spending plan for success) is simply a tool to help you balance your income and expenses in order to achieve your goals. Yes, it can be a tedious task to prepare a budget, but the effort will pay off if it enables you to spot areas where you can adjust your spending and increase your discretionary income – your total available funds minus your total expenses. Most importantly, budgeting will help you keep on track to successfully obtain your goals. See 
Budgeting Fundamentals -- Action Steps in this section. b

Control Your Financial Actions 
The key to a successful financial plan is to control and monitor your actions to be sure that they are in line with your goals.

• Test your budget, for a month or two limit your spending to the total for each variable item you have allowed for yourself.
  
• Keep an accounting of all your variable expenses for these two months.
  
• Carefully review your spending patterns on variable items over these two months and compare them to your budget.
  
• If your budget turns out to be unrealistic, take corrective action by changing your habits (e.g., making many long distance calls, ordering pizza, running up credit card bills.) Caution: Don't become a prisoner of consumer-debt.
  
• Read and stay informed of financial and economic issues so you can anticipate changes that will affect you.
  

If You Have Never Budgeted Before Consider the Basic 10 – 20 – 70 Budget
10 – 20 – 70 Budget

The Cost of Bad Budgeting
Spending an extra $25.00 per week on unnecessary items over a four-year period can be very costly. Twenty-five dollars per week over four years spent from unsubsidized loan monies can amount to an extra $2,000.00 in loan payments per year.

The Cost of Spending vs. The Cost of Saving 
As attractive as spending may seem, the financial advantages of saving are far greater. Goods purchased will depreciate, while money saved should grow in value. Additionally, the tax system heavily favors saving. A dollar of income that spent at the mall has been taxed before you receive it and taxed with most purchases, so that it might ultimately be worth less than 60 cents of goods purchased. 

Saving that same dollar, for example in a tax-deductible retirement account where taxes can be deferred, allows the dollar to be worth a full dollar. If this “full worth” dollar is placed into a 401(k) plan where the employer matches the contribution with 50 cents for every dollar contributed, the value of the saved dollar is now worth $1.50; an immediate 50% return.

The cost of spending gets even greater if the purchase is made with a credit card and the balance is paid off over time with minimum monthly payments. This may cost you as much as, or more than 24% in annual interest charges.

Understanding the Implications of Debt to Income Ratio
For families and students, an important aspect of budgeting begins well before the loan application is filed. Estimating income after graduation and determining the percentage of that income that can be dedicated to repaying student loans is a vital budgeting skill. The monthly payment as a percentage of monthly income is called “debt to income ratio.” Before accepting a student loan, consider your future income and ability to repay. Monthly loan payments may be $50, or more than $1000, depending on how much you borrow. If students over-estimate what they will earn from employment upon graduation, they most likely will also miscalculate what they will be able to realistically afford in repayment. This situation inevitably will result in young professionals experiencing financial failure because of the difficulty in making their monthly student loan payments. This situation is exacerbated because many people turn to increased use of credit cards in order to maintain an appropriate “lifestyle”. 

Paying off student loans is a great way to establish and maintain good credit, so you can borrow again in the future for that new car or first house-or to launch your new business. Typically, graduates entering the work world for the first time generally are not skilled at estimating starting salaries for their chosen profession. Additionally, new graduates may not understand the many factors that affect how much money they can dedicate to loan repayment. They also generally underestimate the independent non-collegiate cost of living. For example, if they do not accurately take into account other costs, such as rent, utilities (including deposits), car payments, etc., they may assume they can afford more student loan payment than is possible. Not understanding the outcome of these uninformed assumptions results in many students borrowing much more much then they can comfortably afford to repay. As a result, many graduates may experience difficulty making their monthly payments because the increased loan amounts creates higher monthly payments that in turn consume a large percentage of monthly income than anticipated. 

Manageable loan payments depend on the amount of take-home pay, amount of loan payments, length of repayment, and other expenses, including rent, food, utilities, car and insurance payments. Repayment problems can occur if too much of one’s income goes to repaying loans and other expenses.

Lenders generally recommend that monthly payments not exceed 8% of gross (pretax) monthly income. This number is derived from credit underwriting practices that limit monthly mortgage payments to 25 to 29% of income and total monthly debt repayment to 36 to 41% of monthly income. Assuming that most borrowers will want to make major purchases, such as a home, in the first 10 years after graduation, the loan industry recommends that graduates in repayment dedicate no more than 8% of their income to student loan repayment. 

How Much Debt is Too Much Debt?

•  When the amount of debt is a surprise.
•  When the amount of debt forces you to change your goals.
•  When monthly student loan payments should exceed 8 to 10% of gross monthly income.
•  When educational borrowing exceeds the gross salary of the first job after graduation.
•  When students over-estimate their income and thus over-estimate what they will be able to realistically afford in monthly payment, once they graduate. 

Calculate How Much You Can Afford to Repay
If you manage your money carefully while you're in school, you'll be better prepared for the challenges you will face after graduation. 

EDWISE, an online financial planning guide at www.edwise.org, can help students take much of the guesswork out of managing money. By plugging in projected loan amounts, estimated expenses and earnings for a future career, students can estimate how much they can afford to repay. EDWISE also offers clear, concise planning information to help students calculate efficient ways to manage their finances, along with a printout of your financial plan.

Budgeting Fundamentals - Action Steps
You can make college more affordable with advance preparation and planning.

• Earn your own money. It is important that an individual experience the effort it takes to earn money. Working to earn money puts spending in perspective. Treat all money (money from parents and financial aid) with the respect and appreciation that you treat the money that you worked for. This attitude helps to keep priorities and goals foremost in the money management process.
• Prepare a budget. The single best tool for managing money is a budget. A budget allows you to identify your resources and expenses in relationship to your priorities. A budget aids in making ends meet by showing you how to use available funds more effectively. You can also use it to highlight areas where you can afford to cut spending or increase income. For a sample Budget Worksheet click here. b
• Use a cash flow analysis to complement your budget. Cash flow analysis is simply a tool that shows when you expect to receive money (income) and from where and when you are to pay money out (expenses). This tool allows you to predict surpluses and deficits, thus giving you the opportunity to may sure that you benefit by your money working for you (in savings) and that you are able to meet all of your expense obligations. Cash flow analysis also provides a piece of mind and security that your priorities and goals are in line with your finances. 
  For a sample Cash Flow Work Sheet click here. b
•  Set aside spare funds. The earlier you start saving as much money as you can –from cutting back expenses, part-time jobs, or other sources such as gifts of cash – the more it adds up. Time is truly money. Visit your bank and other financial institutions via the Internet to learn about interest-earning accounts. Be sure to find out about the fees and other terms before you open an account. Some banks even offer special reduced-fee accounts to students.
• Explore financing options. Check ü with your college’s financial aid office to learn about which student aid programs the college participates. College financial aid packages usually are a combination of scholarships, grants, work-study, and student loans.
• Be alert to deadlines. Make sure you apply to colleges for admission and financial aid well before the cutoff dates.
• Investigate other leads. Consider contacting the network of community, business, professional, social, and religious affiliations that you and your family have established for information about local scholarships. See the Education Resource Center section Paying the College Bill – Scholarship Sources & Other Financial Assistance Sources. b
  

Make Your Dollars Go Farther
Even if you are going to receive financial aid and especially if you are a new student, you will need some money set aside to pay for pre-registration fees, housing deposits, telephone deposits or other early fees. You will most likely need some money for books, supplies, local transportation and general spending money. Before classes begin, explore ways to stretch your cash. Think creatively, and you will surely come up with lots of cost-cutting ideas. Here are some to get you started:

• Take advantage of special fares for trips to and from college
• Keeps long-distance calls to a minimum, and investigate any special rates or plans offered by telephone companies to see if you qualify – have friends and relatives to provide you with long-distance calling cards, travel vouchers and coupons received for being bumped from airlines.
• Become a bargain-hunter. Sell your old books, join a carpool, take public transportation, shop at garage sales and flea markets, attend bargain movie matinees, go to free campus activities
• Buy used textbooks and supplies and reconditioned equipment.

More Money Management Tips For College and Beyond

•  Keep good records. Use a filing cabinet, or a fire and waterproof lockbox to file important papers like promissory notes, loan applications, bank account records, tax returns, loan payment information, receipts, and warranties. Keep everything in order and readily accessible.
• Open a checking account. Ask several banks what their best deal is for student checking accounts. After you open your checking account, keep track of how much money is in it. Do not write checks for more money than you have in the account. If the check bounces, the bank will charge you, and a bounced check will hurt your credit.
• Stay away from check-cashing stores, rent-to-own stores, pawnshop loans, and “pay-day” loan stores. These stores can cost you a lot of money in high interest charges.
• Develop a spending plan (budget) and commit yourself to it. Look for ways to stretch your dollars by cutting back on spending or increase income. Take advantage of every student discount you can. Avoid impulse buying.
• Be careful with credit cards. College students often are bombarded with offers to get credit cards. Watch out! Think of credit cards as loans. If you think you need a credit card, get just one. Shop for the card that has the lowest interest rate and fees and longest grace period (that period of time between the purchase of an item and the time the payment is due before interest is assessed. Each time you use the card, ask yourself if you would take out a loan to buy the item. When using a credit card deduct the amount of the purchase from your checking account balance as thought you were paying in cash. If you accumulate a balance on your credit card, pay it off as quickly as you can, so you do not go deeper into debt. Cut up the card and call to cancel the account if you will be tempted to go into debt again.
• Pay your bills on time every month. This is an important way to build good credit history. Good credit will help you later if you want to take out a loan to buy a car or a house.
• Start a savings account. Even if you can only put away a few dollars every month, the money will start earning interest, and your will start the habit of saving money. One simple idea: Put $1 a day plus your extra change in a jar. Once a month, deposit the money into a savings account at your bank.
  

Some Statistics on Student Debt

• More than half of new graduate students bear $10K-$50K in undergraduate debt.
• New Ph.Ds carry as much as $100,000 in debt.
• Growing percentage of borrowers choose flexible repayment plans.
• Borrowers selecting graduated repayment grew to more than 8.5% from 6.7% for the previous 12 months.
• Increase in percentage of student loan borrowers in forbearance. Nearly one of every five borrowers with unsubsidized Stafford loans serviced by USA Group was in forbearance as of June 30, 1998, up from 9%.
• Approximately 14% of borrowers with subsidized Stafford loans were in forbearance as of June 30, 1998.
  

Budget (Spending for Success) Worksheet

b

Cash Flow Analysis Worksheet