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The key things students must do to set a budget

The 5 essential things students must do to set a budget—and stick to it

When my oldest daughter, Aziza, prepared to go off to college for the first time, we started talking about budgeting. Now that she's a senior and will soon start working full-time after graduation, our money talks have become even more important. She's super excited about using her marketing degree to find a new job—and a good salary.

Aziza recently told me that once she starts working, she plans to "keep living like I'm a college student, and saving as much as I can." That was music to my ears. As her mom, I'm thrilled that many of the financial lessons I've shared over the years have taken root.

If you have a child in college or a teen who's heading off to school, now is the perfect time to teach them vital money lessons. To help with your conversation, here are 5 essential things your student must do to create a monthly budget they can stick with in college—and beyond:

1. Calculate all income sources and expenses

The first step in teaching your son or daughter to set a monthly budget is explaining that it basically has two parts: income and expenses. The most important rule of budgeting is to never spend more than you earn.

It may sound basic, but the truth is that many young people flounder financially simply because they've never been taught how to budget.

Talking about the income side of the budget equation requires a frank conversation with your college-age child about what money he or she will be receiving while in school, including allowances or monthly stipends you might provide, college loans, scholarships and grants, and their own part-time wages.

Once you both understand the income sources, the next step is to list all expenditures—everything from mandatory expenses like college textbooks to discretionary costs, like tickets to on-campus football games—in a budget template, which can be downloaded. Encourage your student to regularly check their bank accounts—including their checking account—online. Set a reminder on your calendars to review your student's budget each semester.

If the expenditures are bigger than the income, bluntly tell your son or daughter that it's time to cut back on spending. Budgeting is iterative, and trade-offs are necessary.

2. Set lifestyle costs beneath your means

Since my daughter is still in college, she doesn't have a car—instead, she rides her bike or takes public transportation.

3. Decide which bills the student will cover

One of the most important ways you can help your college-age child learn to budget is by having them pay for certain items with their own money. My daughter uses her earnings to buy her own food and to cover her share of the apartment's utility costs.

As a family, we've agreed to cover our daughter's needs, including her tuition and off-campus housing, but she has to cover her wants. If she wants to eat at a restaurant with friends, she pays for it. She pays for all of her entertainment, too. And if she wants to buy a purse or do some extra clothes shopping, she knows those purchases are coming out of her own funds.

That's why, when I asked Aziza about her recent clothing spending, she told me that during the past year she's only bought herself three items: a dress for her last birthday, and two pair of shoes. At first, I was shocked, because my daughter loves clothes! But then I remembered: there's almost no better way to teach fiscal responsibility and the art of proper budgeting than making a young adult have some skin in the game.

4. Set a firm cap on entertainment expenses

Entertainment is the biggest budget-buster for college students. There's a lot of peer pressure to spend money, mainly on social activities like going out to eat, going to concerts or even just random stuff like a road trip or paintball.

It's important that students set a strict limit on entertainment costs. And once their money allotted for “fun" activities is gone, they can't spend any more on that budget category for the month.

5. Use easy ways to save on common college costs

Another way to set a budget and stick to it is to use some easy, creative ways to spend money. For example, college students who live off campus can carpool with friends or use public transit to school. As a perk for students, public transportation in many cities is free.

When it comes to the necessities, students can take advantage of campus meal plans and forgo excessive eating out. As for textbooks, they can save money by buying used books, renting textbooks for a semester, or checking out books free of charge from the library.

Living on a budget can be difficult at first, particularly if your student has never had to manage his or her own finances. But controlling how money comes in and goes out is a key step for planning and organizing their life. Good budgeting habits pave the way for good money management—and a healthy financial life.