In my past two posts, I have been working with you on developing a budget for your upcoming academic year. This entailed, first, examining your funding inflows and, second, developing a detailed list of your expenses. Now, we are going to combine the information you have been aggregating these past few weeks into a more detailed spreadsheet, which will give us the information we need in order to make important decisions concerning your upcoming academic year, managing your funding decisions and making adjustments to your expenses if necessary.
The chart above seeks to bring together the information that you have gathered over the previous two weeks with some new additions. You are familiar with the Type A Funding (green), Type B Funding (yellow), and Educational Expenses (blue) categories. Added to these is one new category: outstanding surplus or need. This category is used in two locations, once with Type A Funding and once with Type B Funding. The goal in your budget’s construction is to use as little Type B Funding as possible. This means that all of your expenses should be offset first by Type A Funding; only if there are additional needs, should Type B Funding be considered.
So you can see the chart in action, I am going to walk through a hypothetical example, based on the 2015 new student expense information provided by my alma mater, the University of Tennessee. I am using the same living and food arrangements I had during my freshman year. Aside from the Monthly Ancillaries, the expenses listed here are minimalist.
Type A Inflows:
$4,500- Scholarships for Fall 2015
$1,500- Parental Contributions ($300 at 5 months)
$3,000- Employment ($8.50/hr. * 20 hrs./week * 20 weeks)
$9,000- Type A Funding
$6,667- In-State Tuition & Fees: Tuition ($6,218), Fees ($449)
$4,849- Hess Hall ($2,950), Meal Plan: 7 Day Access ($1,899)
$1,500- Monthly Ancillaries ($300 per month for 5 months)
$14,516- Total Bill for Fall 2015
Type B Potential Inflows:
$2,750 Available for Fall 2015 in Unsubsidized loans (FAFSA)
$3,000 Total Available in Personal Savings
$5,750 Available for use for Fall 2015
Once you input the data into the chart, you now see how your financial picture is taking shape and what options you have at your disposal for educational funding. In my example there is almost an $8,000 shortfall in August should I use only Type A Funding. This occurs because the majority of my expenses are front-loaded and due in August. I have the ability to offset some of this shortfall through the use of Type B Funding, but if I do so, I am taking on $2,750 in student loans and depleting my savings account. Unless I replenish this savings, I will not have any available funds for emergencies or for the Spring 2016 expenses. Notice that there is a positive cash inflow from September through December due to my ability to work and from parental contributions; this frees up $600 per month or $2,400 over the course of the semester for expenses. These funds could be used as part of a payment plan, should UT offer such an option. Despite my willingness to work, find outside funds, and even take on a loan, my long term situation looks bleak.
If I depleted all of my funding options, I would barely be able to meet my funding needs for the Fall 2015. This indicates that viability of my funding the Spring 2016 educational expenses is very low. At a minimum, I would be short $3,000, since I no longer have a personal savings account from which to draw. So what options are available?
In looking at my budget, I would attempt to make ends meet by trimming any excess spending. Naturally, I would attempt to delete my ancillary expense category and live only on my meal plan. If I were successful, I would have freed up $1,500. While this is exciting, I have to be honest with myself and understand that this is highly unlikely. Perhaps, I could bring my expenses to $50 per month. If I felt I could not do enough cutting, I would try to increase my funding immediately through working additional hours (28 instead of 20) to make-up the shortfall, but this too does not increase your inflows dramatically (i.e. around $1,000). You could also work to pay less for your books, and this may free up $750. Should you make these adjustments and not deviate from your plan, you would be able to fund your educational expenses for the upcoming semester using all of your Type A Funding and only the loan portion of your Type B Funding. You still have your savings available for future need. The danger in this scenario is your ability to fund your education is heavily predicated on your contributions from family and work. Should you lose your parental contributions, or lose your job, you would be unable to meet your needs.
If I was looking to stay at this institution long-term, I really have two options. First, I can work with my financial aid department to get some short-term aid, while working hard to acquire outside scholarships. Second, I need to significantly reduce my expenses. Cutting my expenses as noted above assists me as long as I can keep my spending to a minimum, my inflows and expenses constant. Since tuition increase are a constant, I have to factor in an ever increasing expense. If I had the ability to live at home and save the dorm and meal plan expenses, as well as half of my book and ancillary expenses I would be able to pay for my expenses without the use of a loan or personal savings. I can also reduce my expenses by attending an institution, which would provide me a lower educational expense, be it through scholarships, or through minimizing my expenses (i.e. become a commuting student). While these may not be ideal, my current course of action would have me unable to pay for next semester’s educational expenses using Type A or B Funding. From personal experience, when this occurs, students tend to take drastic action rather than withdrawal or take a semester off; they tend to use a credit card as a form of payment, escalating their financial troubles.
As you work through making your personal funding decisions, I would strongly suggest that you take the opportunity to forecast using multiple funding and expense scenarios. It is easy to take the optimistic view concerning your finances, but you also need to be prepared for the “what ifs.” Even more important is your willingness to have an open mind on attending your choice institution should your finances indicate that there is a problem.
Finally, keep these worksheet handy during your scholarship application period. Almost every scholarship for which I have applied asks about my current financial situation. Not only could you answer their request in great detail, you could provide an illustration to back up your need; that is telling your story with power. As always, if you have any suggestions for how I could better this worksheet, please take the time to email me here.