Budgeting
Budget Planning
In order to meet law school costs, most students have to borrow money through a variety of educational loan programs. Students must understand the extensive nature of the financial obligation they are undertaking and the future implications. By taking a conservative approach and exercising prudent borrowing strategies, students can help ensure success in meeting their personal and professional objectives.
Your decision to borrow money in order to finance your legal education represents a serious investment in your future. A substantial portion of your future salary has been committed to the achievement of your educational objectives. Dealing with this long-term financial obligation can be made easier through the implementation of sound budget planning and debt management practices now, as you plan for law school, while in law school, and after law school.
Prior to determining your borrowing needs, it is important that you clearly understand your current financial status. If you have outstanding undergraduate debt or other consumer loans (such as car loan, credit cards, etc.), you need to understand what your repayment obligation is and how this will affect your ability to handle additional debt.
As outlined in our Tuition and Fees section, USD allows a standard student living allowance for a nine-month academic year of $18,440. This means that you must be able to live on approximately $2,049 per month.
Many students have unrealistic expectations about the type of lifestyle they will be able to afford while attending law school. A realistic examination of your individual needs should be made to assure that your student lifestyle expectations are consistent with financial resources and obligations.
How to Develop a Personal Budget
Purpose of a personal budget.
Your personal budget is like a road map. It is a worksheet describing your lifestyle. It tells you who you are financially, where you are currently, and where it is you want to be. In other words, it can be used to show you where you are going financially and how to get there.
Your budget can guide you in knowing how much debt or credit you can safely afford. It can help motivate you to reduce your discretionary consumer borrowing (i.e., use of credit cards).
Your personal budget is an important component of any financial planning you do. In fact, the first step any financial planner will take in advising you about your investments and finances will be the development of a comprehensive personal budget. It also is an important element in applying for personal and business loans.
Developing your personal budget.
The best way to develop your personal budget is to use worksheets. There are a number of self-help books on the market that have alternative versions of a budget worksheet. The important thing to remember is that your goal is to determine how much you spend each MONTH on the various items you purchase/pay for. It should be detailed and as accurate as possible.
You can use receipts or monthly billing statements to help quantify your expenses. Another approach is to keep a daily journal of how you spent your money that day. Develop a worksheet with columns corresponding to the major items in your budget. Then, each day, write down how much you spend in each category. You don't need to describe the purchase or indicate how you paid for it, just write in the amount (and perhaps, the date). KEEP IT SIMPLE–otherwise you may not stay with it! Tally each column on your worksheet at the end of the month. Repeat the process for several months to get an average or, if you want, do it every month.
Important budgeting don'ts.
The following points about budgeting are taken from Your Personal Financial Fitness Program. 1991-92 Edition by E.S. Lewin (1991, Facts of File, New York).
- Don't be dictatorial. Work out the budget by agreement with yourself and other family members.
- Don't be in a hurry. You can't do it in an hour or a single sitting. It takes time.
- Don't go by what others spend (that is, don't keep up with the Joneses).
- Don't expect miracles. A budget is a tool to help manage more effectively. By itself, it will not give you more money or cut your spending.
- Don't nickel and dime it. Round figures UP or DOWN to the nearest dollar, and big figures to the nearest $10.
- Don't overdo the paperwork. Report the essentials, that's all.
- Don't be inflexible.
Remember that a budget must have room for give and take because circumstances change. The kids will grow, demands will shift, and income as well as outgo will change. Be ready to review, evaluate, revise and adjust as your lifestyle changes.
How can I make my financial aid last?
We all know that it's hard to make money last. This is especially true if you only receive funds once every three, four, or five months. And that's exactly what happens with your financial aid funds. These funds generally are disbursed to you once each term at or near the beginning of the term. It's your responsibility to make sure that you budget them so that they last until your next disbursement. This, however, can be very difficult. It's like getting paid once a quarter by your employer. Although your financial aid funds should never be confused with earnings, they still may be the main source of money you use to pay your expenses. And, it's important to note that the Financial Aid Office may not be able to let you borrow additional funds if you run out. Thus, how can you make the funds last?
Set up a Holding Account:
One way to make the funds last is to open a second account–a "Holding Account"–where you can hold your funds until they are to be used based on your monthly budget.
More specifically:
Open a savings account for your living expenses; and Have the funds you have budgeted for the month transferred electronically at the beginning of each month from your "Holding Account" to your daily checking account.
You may also want to avoid getting an ATM card or checks for this second account so that you are not tempted to draw funds from the "Holding Account" ahead of your monthly budget schedule.
Reprinted with permission by Access Group, Inc.
"The Borrower's Dozen"
You should get answers to the following 13 questions, "The Borrower's Dozen," as you plan the financing of your education. Some of these questions are general and apply to any school you may be considering; others are more specific to the programs, policies, and procedures of each school. You should evaluate these issues as you explore your financial options. Remember, financing your education requires a collaboration of yourself, your family, your school, and your lender(s). Answering these questions should give you the information you'll need to make well-informed choices about how to finance your education and to make the most of your educational investment.
Questions to Ask Before You Borrow
- What should I be doing now to prepare for meeting the cost of my education?
- What eligibility requirements must I meet in order to obtain financing for my degree?
- What financing options/programs are available to me at the school(s) I am considering attending?
- What is the purpose of financial aid, and what do I need to know about the process?
- How do I apply for financial assistance, and what applications are needed?
- When should I apply for financial assistance, and what are the application deadlines?
- Will my parents and/or spouse be expected to provide any of their financial information and/or contribute to the cost of my education?
- What is done with the information I provide?
- What should I know about the assistance I am offered, such as grants, loans, work study?
- What can I do to reduce the amount I have to borrow, yet still attend the school of my choice?
- What can I do, once I arrive on campus, to minimize how much I borrow?
- What options will I have for working while obtaining my degree?
- What impact will the loan(s) I borrow have on me after I complete my education?
Where Can You Find the Answers to These Questions?
The financial aid staff at USD School of Law and the Financial Aid Office website are probably your most important resource to use in answering these questions. You can consult publications from funding groups, such as federal and state governments, lenders, scholarship-granting organizations, and financial aid guidebooks that are available from your local library or bookstore.
Another useful and timely source of answers to these questions is the Internet. Most schools have their own web sites, which frequently include information about financial aid. Many lenders and other funding organizations also have web sites. There are several web sites that have been established by government agencies and other organizations to assist students with the financing of their education.
Printed with permission from Access Group, Inc.
"The Borrower's Dozen" Continued: 13 Good Habits for Achieving Your Dreams
For most people, bad habits are hard to break and it is difficult to get into good habits, particularly when it comes to money. "The Borrower's Dozen" listing provided here includes some good financial habits that should allow you to succeed at achieving your goals and help you to be responsible in the financing of your education. It is not too early to get into these "good" habits if you have not already done so. The longer you wait, the more difficult it will be.
- Identify your financial goals.
- Make well-informed choices about how you use your resources.
- Don't live a lifestyle you can't afford. Live below your means while in school so that you can afford to live like a professional once you graduate.
- Budget your money just as carefully as your time; get on a monthly budget and stick to it.
- Save a little each month (even if only $5), and plan for your financial future.
- Keep accurate, well-organized records of your financial activities.
- Establish and maintain a strong credit history; review your credit report annually.
- Borrow the minimum amount you need.
- Pay the interest on unsubsidized loans when it accrues, if possible.
- Be a well-informed borrower. Not all loans are alike; know the differences and borrow wisely.
- Pay your credit card balance in full each month. Charge only what you know you can repay when the bill arrives.
- Limit the number of credit cards and available credit you have.
- Be realistic about how much money you will earn once you graduate-don't count on any immediate financial windfalls.
Good Habits to a Sound Financial Future
- Don't live a lifestyle you cannot afford.
- Budget your money just as carefully as your time. Put yourself on a monthly budget and stick to it.
- Get in the habit of saving even if you can only save $5 per month.
- Keep accurate, well-organized records of your financial activities.
- Maintain a strong credit history.
- Borrow the minimum amount you need to achieve your goals.
- Be a well-informed borrower. Not all loans are alike, know the differences and borrow wise.
- Limit your use of credit cards, save them for emergencies.
- Cut up all but one of your credit cards, you only need one.
- Be realistic about how much money you will earn.
"Top 10" Good Habits for Students List (PDF)
Loan Consolidation
By understanding your responsibility to repay your education loans and developing an effective repayment strategy, you will avoid the pitfalls that lead many borrowers into default. Default occurs when you fail to meet the terms of the promissory note. If you have problems making your loan payments you should immediately contact the holder or servicer of your loan for more information and to obtain any required forms that should be completed/submitted. It is recommended that you also talk to your financial aid administrator about any repayment questions you have.
The Higher Education Act
The Higher Education Act (HEA) provides for a loan consolidation program under both the Federal Family Education Loan (FFEL) Programs and the Direct Loan Program. Under these programs, a borrower's loans are paid off and a new consolidation loan is created. These programs simplify loan repayment by combining several types of federal education loans (that may have different terms and repayment schedules or may have been made by different lenders) into one new loan. The interest rate may be lower than on one or more of the underlying loans. In addition, the monthly payment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs. These features should result in more manageable debt and should make borrowers less prone to default.
Loan Consolidation Links
FederalConsolidation.Org - www.federalconsolidation.org/
Federal Direct Consolidation Loans Information Center - www.loanconsolidation.ed.gov/
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