There are a lot of financial steps involved in moving out and living away from your family. It’s a major life transition, whether you’re living on your own, with roommates, or on campus. And it’s an important time to develop life skills, like managing your money. Check out these tips for budgeting as you navigate living on your own for the first time.
On this page you’ll find
What steps will help you manage the cost of living on your own?
There are many expenses to manage when you’re just starting to live on your own or sharing a place with roommates. Whether you’re a student, living away from home for the first time, or simply new to living on your own, it can be a lot to figure out. So, you’re not alone if your first question is how you can cut some of your expenses.
There are lots of effective ways to cut costs, whether you’re working, in school or both. Some strategies may fit your life more than others. Consider trying out some of these costs cutting strategies to help you stay afloat and reach your goals:
- Adjust your expectations: Your first home away from home is a big change and it’s normal to go through a period of adjustment. It can help to focus on the basics at first. Make sure you’re managing your day-to-day needs and your studies. Other things might wait until you’re more settled.
- Practice money-saving habits: Find ways to work thrifty habits into your everyday routine. For example, take transit or cycle to save money when you’re getting around town. Create your own personal spending rules such as no online shopping after 8 p.m. Find the habits that will work for you, and they’ll stick with you long after your student years.
- Look for bargains: Thrift shopping and bargain hunting can double as a social activity or hobby time, as exploring thrift shops can help you get out to see new neighbourhoods with friends. Check grocery store flyers to shop what’s on sale and help you plan affordable meals ahead.
- Take advantage of student/special offers and rates: If you’re a student, you likely have access to special rates for things like public transit, campus gym or rec facilities, or even meal plans. Check what’s available through your student fees and take advantage — there might be hidden surprises. Anything that’s already available for free or at a discount is money you won’t need to spend from your pocket.
- Participate in a meal plan program: A meal plan at school can help you avoid spending as much money on groceries and dining out. Make the most of what the school cafeterias have to offer. If you’re not on a campus meal plan, prepare your own food at home, when possible, to reduce takeout expenses and help limit food waste.
Using even one or two of these strategies will make a real difference. But also keep in mind that finding ways to trim your expenses is just one part of making a budget.
How do you start making a budget?
Having a realistic budget is one of the best ways to stay on top of your finances. Your budget can help you visualize how much money is coming and how much is going out each month. A budget compares your income (including the money you make from a job, scholarships, or monthly stipends), against your expenses (including rent, food, transportation, and so on).
There are a lot of ways you can make a budget. The main thing is to get a realistic picture of how much you have left at the end of each month — or whether you are spending beyond your means. Any money leftover can be put towards savings.
A first step to creating a budget is to identify your needs and your wants. Needs are the things you can’t live without, like shelter and food. Wants are the nice-to-haves, like a new streaming subscription or concert tickets. It’s not always easy to know whether something is a need or a want, but ideally, only include your needs in your budget.
Not sure where to start with budgeting? Try these five steps to creating a budget. Or you could start by tracking your expenses first, so you get a reality check of where your money is going. Sometimes just tracking expenses can be enough to begin finding places to make changes.
The first time you make a budget, you might not get everything right. Keep in mind you can adjust it the next month and can keep finetuning it. A budget is a living document; it will change over time. It’s a good idea to update it regularly.
A budget can also change if your goals change. If you’re considering an expensive vacation or a big purchase like new appliances or a car, a budget can help you save up to cover those costs.
There are many ways to make your budget work for you, including:
- Find a tracking tool that you’ll use: There are apps (your bank might have one), you could always use an Excel spreadsheet, or you could write things down in a notebook. You could also download your bank and credit card statements and get all the info you need once a month.
- Have a money date with yourself: Set aside a little time toward the end of each month to check in with your budget and review your expenses. If you have a friend or partner also working on a budget, you could set aside time to review your budgets together.
- Keep an eye on your finances: If you know what you’re making, spending and saving, you’ll have fewer money worries in general.
- Talk to your friends about it: If your friends know budgeting is a priority for you, their support can help you stick to the habit. For example, it’s helpful if your friends agree to join you at the cheaper coffeeshop that fits in better with your budget. They might also be thinking about money and have tips to share on how to manage money better.
Watch for spikes and dips
As a student, budgeting can make you more aware of spikes and dips in your income and spending throughout the year. For example, during exam periods you might feel stressed and more likely to engage in impulse spending. And if you receive scholarships or grants, it’s likely you’ll get these in a lump sum that will need to be managed so it lasts the semester. If you know when to expect these highs and lows, you can prepare for them by adjusting and planning.
What is credit and how can you start using it?
If you buy something with credit that means you pay for it later. Basically, credit allows you to temporarily borrow money to buy something now. This makes it a convenient way to make purchases without needing to have cash on hand.
When you use a credit card, essentially you are promising to repay the amount loaned to you by the credit card company. One of the trade-offs is that you will owe interest on the purchase until you repay it in full — unless you do so within the grace period (usually 21 days). Another trade-off is that most credit cards charge an annual fee.
Before you sign up for a credit card, make sure to read the fine print. Take a look at how credit cards work and learn what to watch for including the annual fee, interest rate, and how long the grace period is before you owe interest on your purchases.
If you pay off your credit card balance in full each month, this will prevent you from paying interest on the balance. But when you buy something on credit, you could end up paying more than the original price of the item or service if you don’t pay your full credit card balance. For example, if you buy a $15 dinner on credit, you may end up paying more than the meal originally cost if you use credit and don’t pay your bill off in time.
If you pay off your debts in full, it helps establish a pattern that you are ‘credit worthy’, or someone who is reliable at repaying debt.
Credit is an important part of financial life in North America. Being credit worthy also improves your chances of being able to borrow for other reasons in the future — such as with a line of credit at a financial institution or get a larger loan for a car or mortgage. Your credit worthiness is represented by your credit score.
Your credit score number tells lenders how reliable you are with money. You can’t get good credit if you don’t use credit, so when you do decide to take on a credit card, ensure you’re able to manage it well. If you have trouble repaying your credit card balance, this could harm your credit score.
If you’re new to credit, you might want to get a credit card with a low monthly limit (for example, $500) and only use it for small purchases you can pay off in full.
Try these tips to manage your credit wisely:
- Repay your credit card balance each month to avoid owing interest.
- If you can’t repay your full balance, pause using your credit card and make a plan to repay it as soon as possible.
- Schedule a calendar reminder to pay your credit card bill on time.
- Read the information about your credit card carefully before agreeing to the terms – know your interest rate and what could cause it to increase.
- Know your monthly limit and avoid going over it.
- Keep an eye on your spending – check your statement each month and review to make sure you recognize all of the charges.
- Avoid using your credit card for purchases you know you can’t afford.
When is a good time to start saving?
Saving should always be part of managing your money, even if it’s just starting with small amounts. It’s likely you have a tight budget, as a student or someone just living away from home for the first time, but it’s worth finding a little to save.
Saving a bit each week or month can add up, especially if it’s in an account that collects interest while your money stays in the account. The earlier you start saving, the more you’ll take advantage of compound interest. Compounding is when you reinvest the returns of your original investment.
If you reinvest your earnings, you’ll have a much bigger base of money in the future. This helps your money grow faster. Try our compound interest calculator to see now much you could save.
Your savings goal could be a special purchase or to create an emergency fund. Having any kind of savings set aside can help if something unexpected happens. Try to keep your savings in an account you won’t use for everyday expenses. Keep your savings in an account that’s just for saving.
A popular way to make saving easier is to automate it. Look at your budget and see how much you could set aside each month. Then, set up a recurring auto-transfer to a savings account. It’s sometimes called the “pay yourself first” strategy. Many people like this strategy because it allows them to budget for their savings. That money has a dedicated purpose and it’s not available to spend until you need it.
How much should you save?
If you don’t have a lot of personal savings yet, an emergency fund could be a good first goal. Having $500 put aside would be enough to cover something like a last-minute course field trip, a dental appointment or modest car repair. Once you’ve saved up $500, the next goal might be to save a full month’s living expenses.
Summary
Living on your own for the first time can be exciting, but also expensive. There are some financial tips that can help set you up for success, including:
- Look for ways you can trim expenses and make it a habit.
- Track expenses to make a budget.
- Adjust your budget regularly until it feels right.
- Credit is part of managing your finances and building a credit history. But make sure to pay off your bills on time and have a plan to manage any debts.
- Start saving small amounts and build up as you are able. Developing a savings habit will help you now and throughout your life.
