Budgeting: My Investment, My Choices

Whether you're just beginning professional school or preparing for life after graduation, decisions and choices about money will influence your quality of life now--- and in the future.

Making wise choices now will ensure you have the kind of life you want as professionals.

Be assured that while other aspects of daily life may seem out of your control sometimes, you are always in control of how--- and how wisely--- you spend your money.

Most health professions students have limited funds and rely on student loans while they're in school, so a strategy for spending is essential.

As you work through this section, keep in mind that student loans become your resource and your debt as you borrow them. This is good because it allows you to support yourself as a student, but it's very important to remember that the loans are real money - and you'll eventually repay them with interest.

Smart Spending: Budgeting While in School

What's essential, what's not? To make wise choices, begin by looking at what you spend your money on, and what is absolutely necessary.

To help you out, keep in mind that needs are necessary to sustain life, health, or safety. This includes food, shelter, health insurance and necessary medications.

Before buying something, ask yourself if it's something you need, or simply something you want. Buy the items yu need to maintain your health and safety, but proceed cautiously with the items you want.

Juan is a second year pharmacy student. His budget is $44,740, including his annual tuition of $28,952. After his tuition and fees are paid, Juan has $14,566 ($1,618 per month) for his living expenses. Juan receives some scholarships and borrows the remainder in student loans. He lives off campus in an apartment he shares with another student.

Juan's monthly expenses, after tuition is paid, include the following:

• Rent: $1,000
• Food: $160
• Books/supplies: $140
• Car Payment: $350
• Utilities: $125
• Transportation: $175
• Entertainment: $500
• Clothing: $125
• Credit cards: $50
• Total: $2,575

In addition, Juan has accumulated more than $4,000 in credit card debt. Though he tries to pay more than the minium due each month he finds that he usually doesn't have more than $50 to put towards the debt.

Juan's expenses exceed his budget by $957 each month, leaving him with a shortfall of $8,613 for the school year. He's obviously not going to have enough money tolive through the year unless he changes his spending habits.

Let's examine why there's such a shortfall, and what Juan can do to resolve the problem and keep his spending within his budget.

Our lives are filled with budgetary Money Pits - habits and attitudes that consume more money than we have to spend. These Money Pits an be found everywhere and are easy to fall into if you're not paying attention.

If you know where most of them are located, though, you can avoid them and remain on track with your spending. Let's look at each aspect of Juan's spending to identify the Pits, and to find ways for them to be avoided. By Juan - and most importantly, by you.

Give Me Shelter: Minimizing Housing Expenses

Juan has a roommate- a good choice to save some money on housing. However, he and his roommate share a two-bedroom house and the rent is $2,000. The rent doesn't include any utilities so Juan and his roommate have to pay those expenses separately.

Juan and his roommate can lower their expenses by either getting another or by looking for a smaller apartment. Since they like their house and it's close to campus, they ask one of their friends to share the home with them, and the rent is reduced to $667 per month for each student. To brind the rent down even further, Juan and his roommates offer to do the yard work at the home and their landlord agrees, reducing the rent to $1,900 per month. Now each student's share of the rent goes down to $633 per month.

Other ways to reduce housing costs:

• FInd housing that includes utilities.
• Live with family members who charge little or nothing to rent.
• Find someone who is willing to provide housing in exchange for work, such as maintenance on the building or other services that don't interfere with your schoolwork.
• If it's financial feasible, ask your parents about purchasing a house while you're in school. Other students rent rooms in the house and the income may offset monthly mortgage payments. It's also a good investment for your parents.

Food for Thought: Reducing the grocery budget

Like many people, Juan doesn't have the time or interest to cook often. Instead, he relies on quick trips to the convenience store or grocery store. He's often hungry when he goes and grabs the quickest and easiest food available. Unfortunately he's paying more than he needs to for the convenience. He's also gained 12 pounds since the beginning of the semester.

Instead of living on food from the deli, Juan decided to begin shopping with his roommates once each week to stock up on food they would each cook through the week. They began to prepare large batches of chili, pasta and other dishes, and started to freeze some portions for future meals.

In addition, Juan began to bring his lunch to school and enjoyed having the extra time at lunch that he used to spend going to the drive through for fast food. Perharps most important, Juan stopped visiting the convenience store and began to bring his coffee and snacks from home. Remember that $5 will buy you 60 cups of coffee from home instead of 4½ from the coffee shop!

These changes reduced Juan's grocery expenses from $160 to $100, saving him $540 per year.

Some additional ideas for saving money at the store:

• Use a list.
• Clip and use coupons.
• Share groceries with roommates to reduce the cost for all. (Do you really need three cartons of milk?)
• Shop for snacks and other groceries at a regular grocery store instead of a convenience store where prices are higher.
• Plan dinners with tomorrow's lunch in mind. You can save between $15 and $25 per week by bringing your lunch to school. And the food is usually healthier. too!
• Buy store-brand instead of name brand. They're less expensive and usually have the same ingredients.
• Host group potlucks with friends on weekends and make it into a social event.

Around the House

Juan and his roommates had a satellite dish that brought 120 channels into their home. As a result, they spent a lot of money and time in front of the television. They decided to remove the dish and subscribed only to basic cable, reducing the cost to only $14 per month from $27, saving Juan $117 per year.

In addition, Juan had been paying $25 per month for an Internet service provider. He began to use a free provider and saved $225 per year.

Other ideas for saving money at home:

• Ask all utilities about special discounts for students.
• Checkout discount and dollar stores for cheap household items like sponges, trash bags, cleaning products.
• Find the cheapest long distance telephone service you can, and limit your phone time. And you don't need extra services like call waiting.
• Consider having just one phone - either a landline or a cell.
• Write postcards, letters and e-mail instead of using the telephone.
• Use free internet service providers.
• Turn down the air conditioner or heat when you're not home.
• Turn off unused lights.

The Traveling Money Pit: Transportation

Juan bought a new car the summer before he started pharmacy school. His car payment of $350 per month is unavoidable because he needs reliable transportation to his clinical sites two days a week. On the other days, though, he began to either walk or take the bus to campus. He saved money on gas and lost three pounds.

Other ideas:

• Carpool with a classmate(s).
• Take public transit, bicycle or walk as much as possible to save on transportation costs.
• If you must have a car, buy a used one and avoid having an auto loan while you're in school.

Entertainment

Juan found himself trying to cheer himself up by spending money on entertainment. Although watching a movie and going out for dinner is a treat, keep in mind that it's just that- a treat. Instead of splurging all the time, look for ways to reward yourself without spending money. Go for a walk or meet some friends for coffee. Some more ideas:

• Enjoy free activities on campus, or at local parks, libraries or galleries.
• Use an exercise tape or free on-campus gym facilities instead of buying a gym membership.
• Choose inexpensive, fun places to eat.
• Ask for student discounts.
• Download legal MP3s or burn you own CDs (legallly!)

Clothing and Personal Items

• Shop for clothes at off-price stores or factory outlets.
• Avoid purchasing items that have to be dry-cleaned.
• Ask for clothing or gift certificates for gifts.
• Borrow special ocacasion clothes instead of buying a one-time outift; or "invest" and share with a couple of similar-size friends.

Give Me Some Credit: Wise use of credit cards

• You only need one credit card. Period. Destroy the others and request that the credit card companies close the accounts on all the cards you've destroyed.
• Keep your one credit card at home- not in your wallet.
• Don't carry a balance on your credit card- try to pay it off each month.
• If you're trying to pay off a balance, don't settle for paying high interest. Call your credit card company to request a lower interest rate. Compare card benefits and terms on the Internet on such sites as http://www.creditcardguide.com
• If you get into trouble with credit card and feel it's out of your control, contact the National Foundation for Consume Credit (800-388-2227) for help.

Take it to the Bank

• Comparison shop for the best banking services, including free checking and limited or no ATM fees. Don't assume banks are all the same!
• Plan your ATM usage once of twice a week, and then leave your card in your room to avoid spontaneous withdrawals.
• Track yout ATM withdrawals in your checkbook immediately; or store your receipts in your checkbook and enter them regularly.

• Each semester, deposit any excess financial aid into your account and only withdraw what you've budgeted monthly. Or better yet, keep a separate savings account and have your monthly expenses transferred into your checking account on the first of each month.

Remember, you don't have to eliminate all the extras in life that you enjoy. Just splurge conscientiously and carefully. Ask yourself why you want to buy or do something, then decide if the cost is worth the reward. If you decide to proceed, enjoy it! And decide where you can cut back a bit in other areas.

Planning for Life after School

As a student you know that the choices you make now will influence your life after graduation. Soon after graduation you'll begin to earn a salary- some of you for the first time. You will also begin to repay the educational debt incurred during school.

You'll carry your knowledge and ability to make wise choices into your working life, and will benefit from your wisdom.

Let's assume you'll earn $95,000 in your first professional position. Keep in mind that $95,000 is your gross salary, meaning the total before taxes have been deducted. On average, you can plan on having between 30 and 33% deducted for taxes. As a result, your net salary will be what you will live on each month.

Your income will be approximately $64,000.

When considering your expenses, remember the question you asked yourself as a student, what's essential? What's not?

As a new professional, you'll have goals for the future, both short-term and long- term. You may be planning to buy a home or purchase a new car. Your new expenses may look something like the following:

Monthly Net Income: $5,383

• Mortgage: $2,000
• Food: $160
• Student Loans: $850 (based on $10,000 debt at 4% interest over 15 years)
• Car Payment: $350
• Health Insurance: $600 (remainder paid by employer)
• Credit Cards: Variable depending upon balance and charges
• Entertainment: Variable depending upon your lifestyle