7.2: Assessing Your Current Financial Situation
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)Assessing Your Current Financial Situation
Before you can take control of your finances, it’s important to get a clear picture of your current situation. Understanding how you’re spending your money and creating a budget that works for you is the first step toward financial success. Whether you're living on a student budget, working part-time, or planning for future financial goals, getting a handle on your finances now can set you up for long-term stability.
Track Your Income:
The first step to financial self-management is understanding where your money is coming from and where it is going. This includes tracking both your income and your expenses and identifying areas where you may be able to make adjustments. Having a clear picture of your current financial situation can help you make more informed decisions about spending, saving, and achieving your financial goals.
When calculating your income, be sure to use your take-home pay rather than your hourly wage or gross salary. Take-home pay is the amount you actually receive after taxes and any deductions, such as health insurance premiums, retirement contributions, or other payroll withholdings. Since this is the money that is actually available for spending and saving, it provides the most accurate foundation for creating a realistic budget.
Common income sources for students:
- Pay from a part‑time or full‑time job
- Family support or child support
- Government benefits
- Gig work or side jobs
Track Your Expenses:
Once you know your income, the next step is to track how you’re spending it. Write down all your monthly expenses, both fixed and variable.
Fixed expenses are things that don’t change month to month, including:
- Rent or mortgage
- Utilities (electricity, water, trash)
- Insurance payments
- Phone plan
- Internet
- Car payment (if applicable)
- Auto insurance
- Subscription services (Netflix, Spotify, etc.)
- Tuition and fees (if paid monthly)
- Credit card payments
Variable expenses are those that can fluctuate month to month, such as:
- Groceries
- Household supplies and toiletries
- Gas and routine maintenance
- Clothing and shoes
- Personal care (haircuts, etc.)
- Dining out or entertainment
Building a Budget
Now that you have a better understanding of where your money comes from and where it goes, the next step is to create a budget. A budget is a plan for how you will allocate your money to cover expenses, save for future needs, and work toward your financial goals. It compares your income (what comes in) with your expenses (what goes out) over a set period, usually a month, and helps you decide how much you can spend, how much you should save, and how to make sure your income covers your expenses. The purpose of a budget is to help you make intentional choices so your spending aligns with your priorities and allows you to live within your means.
A good budget can help you:
- See where your money actually goes.
- Avoid overspending and unnecessary fees.
- Prepare for emergencies and irregular expenses.
- Reduce financial stress and support academic success.
- Build healthy long-term financial habits.
A simple way to get started is by using the 50/30/20 rule, which suggests dividing your after-tax income into three categories:
- 50% for needs: Essential expenses such as housing, groceries, transportation, insurance, and utilities.
- 30% for wants: Nonessential spending such as dining out, entertainment, hobbies, and shopping.
- 20% for savings and debt repayment: Money set aside for future goals, an emergency fund, or paying down debt.
Think of the 50/30/20 rule as a starting point rather than a strict formula. Your percentages may shift during school (for example, higher “needs” in months with book purchases). The important thing is to create a budget that reflects your unique situation and helps you make informed, confident decisions with your money.
Example of Budgeting Worksheet:
Template Budget Worksheet in Google Docs: Budget Worksheet
Researching Future Income and Living Costs
If you’re wondering what your income will be when you earn your educational credential so you can plan a budget, you can find entry-level salaries in Career Coach (which is linked in the Academic Planning chapter of this OER). Career Coach is a tool from HACC’s Career Development and Transfer Services that assists you with investigating career interests and doing career research. You can see salary information as well as typical job duties, employment projections and even live job listings in HACC’s service area. Here’s the link to Career Coach on hacc.edu: Career Coach - Welcome to Career Coach. Note: the default geographic area is Harrisburg/Carlisle, and you can change that geographic area when you click on a specific occupation.
You’ll also need to know about the cost of living for the area you plan to live. You may plan to stay in the same area where you currently live, but if you’re planning to move after earning your educational credential or you are open to exploring job openings in many places, you can research the cost of living using websites that provide that information. Here are several websites to explore:
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Numbeo (allows you to pick among over 12,000 cities on a map): www.numbeo.com/cost of living/
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These websites allow you to compare costs of living between two different cities: Cost of Living Calculator - City and Salary Comparison Tool; Cost of Living Calculator | City and Salary Comparison Tool - NerdWallet; Livingcost - Compare cost of living in 9294 cities and 197 countries
Putting Your Budget into Practice
Now that you know the components of a budget and how to find potential income information, here are five steps you can follow to put together a budget that will work for you.
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Define your goals: (refer back to the Goal-setting Chapter and SMART goals plus see the next section of this chapter) Set your financial goals. Most goals you set will have some type of financial impact.
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Be accurate with your budgeting: Accurately determine your true income after taxes and deductions so that you’re planning to spend only the money you actually have available. Then list all your financial responsibilities, including everything from rent to gym memberships. Finally, subtract your expenses from your income. What is the result?
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Reduce your spending: If you end up with a negative number, you have some work to do by cutting expenses. If your income is higher than your expenses, there still may be areas where you can cut back or ways you can save even more. These cuts can range from skipping a takeout coffee to changing your internet service provider or refinancing a loan.
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Save and plan ahead: Having savings lets you rely less on credit and avoid creating additional debt when an unexpected expense crops up. As listed in the budgeting worksheet, treat savings like a bill you pay each month and plan for possible surprises in the short-term, as well as known savings goals, like retirement, in the long-term. See more about savings in the next section of this chapter.
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Review and adjust: Once you’ve balanced your budget, give yourself a trial period to make sure your budget is working and schedule regular times to check back and adjust as needed. Reviewing and adjusting is important as your goals or circumstances may change over time. Even something seemingly small can cause significant changes to your finances.
Here are some additional budgeting resources:
Website: https://www.mymoney.gov/for-teachers
Website: Budget Glance - Free Budget Calculator & Financial Planner
Website: Creating Your Budget | Federal Student Aid
Website: Personal Finance Resources from PSECU
Video Link: Budgeting