Can the Dave Ramsey Budgeting System Work for College Students?

What if there was a way to stifle debt from accumulating while you are still a college student? The budgeting system Dave Ramsey recommends just might work for you. Many people have turned to Dave Ramsey’s Financial Peace University for help in getting out of debt that has accumulated over many years, but you can also use his plan while you are a college student.

College students can use the Dave Ramsey budgeting system to learn how to plan and manage their money. While preparing for college, attending college, and post-graduation, students will learn how to prevent debt from building while setting them up for financial independence and success.

Dave Ramsey’s budgeting system outlines several ways you can accomplish a “debt-free degree.” Whether you are a high-school student preparing for college or a full-time professional considering online classes, keep reading below to see what it takes to maintain a debt-free life with Dave Ramsey’s advice.

Creating A Successful Budget for College Students

A zero-based budget is what Dave Ramsey recommends to help you control every dollar you spend or earn. Typically, this would be calculated by subtracting your monthly income from your monthly expenses to equal zero at the end of the month. When translating that equation to work for a college student, there are a few questions you need to start with.

Where is the money coming from? – Student loans, scholarships or grants, your parents, employer, or out-of-pocket. You need to have a full understanding of the funds available to you at the beginning of the semester.
What are your Tuition and Fees? – Your tuition can come with extraneous student fees that can catch you off guard. You need to know exactly how much you will be paying for all tuition and fees for the semester.
What are your housing, food, supplies, and transportation costs? – Student housing or off-campus rent, meal plans, books, public transportation, or gas for your vehicle? All of these factors will play a significant role in how to determine what your budget can and should be.

Instead of focusing on a monthly budget, you will need to break it down into a semester budget to better help you determine where to tell your money to go. The goal of a zero-based budget is to give every dollar a job to do.

A Sample Budget for a Semester of College

Check out this example of what a budget for a semester of college might look like when you are using Dave Ramsey’s zero-based budget system.

Income:

Scholarships/Grants – $7000
Student Loan – $3500
Part-time Job– $10/hr 20 hrs/week – $3200/semester $800/month

The Expenses	The CostSemester: Month	The Starting Income – $13700Breakdown
Tuition and Fees	$4873	$8827
Rent and Utilities	$4260: $1065	$4567
Meal Plan	$1500	$3067
Food (Groceries and eating out)	$1200: $300	$1867
Books	$414	$1453
Gas	$320: $80	$820
Fun Money	$500: $125	$320
Savings	$320: $80	$0
Total:	$13,700	$0

It is important to note that any money left over at the end of the semester should be applied towards your savings when you are using this budgeting system. If you use this method, it can set you up for a smoother transition from college to professional life and help you pay down any student loans you may accrue.

You CAN go to College Debt-Free

It’s commonly accepted that you have to go into debt to get a higher education. Dave Ramsey is adamant about encouraging the abstinence of student loans while you are in college. On his YouTube channel, The Ramsey Show – Highlights, there is a video that breaks down “How to Pay for College (The Right Way).” He expands on four tips to help you achieve a debt-free degree.

Choose a school you can afford.
Apply for scholarships or grants.
Work during college.
Live at home.

You have to be willing to put in the work and have the drive to lay out a successful financial foundation to build on for your future.

When and How to Start Saving for College

The average federal student loan debt in 2020 was $36,510 per borrower. So, how does Dave Ramsey recommend preventing you from accumulating that debt? Whether you are a parent looking to start your kids off on the right foot or a professional looking to get a higher education, when following his plan, you will need to knock out his four baby steps first.

Save $1000 for an emergency fund.
Pay off all debt (except the house).
Save 3-6 months of expenses.
Invest 15% of household income into retirement.

After you’ve accomplished the first four baby steps, step 5 is to save for college. We’ve covered the when, but what about the how? Once you’ve conquered the first four baby steps, Dave Ramsey recommends starting a college fund.

Education Savings Account (ESA) or Education IRA

An ESA gives you the ability to invest up to $2000 (after tax) per year, per child. The average stock rate is 12%, and the investment grows tax-free. That means when it’s time to withdraw the money to pay for tuition, you won’t have to pay any taxes! However, one drawback is that you have to meet an income limit to qualify and the funds must be used by age 30.

Educational 529 Savings Plan

The 529 plan can be used for other education expenses such as books, tutoring, etc. It also offers a higher investment limit per year than the ESA and gives you the option to move from one beneficiary to another. Dave recommends staying away from a 529 plan that would freeze or change options based on your child’s age because you want to always be in control of your mutual funds.

An ESA and 529 plan can also be used to pay for educations expenses such as:

Books
Tutoring,
Vocational school
Private school

This is one of the many perks of starting savings in these plans early. All expenses could be covered by the time your child is ready for college!

UTMA or UGMA (Uniform Transfer/Gift to Minors Act)

This account is in a child’s name but is controlled by a parent or guardian until age 21. You should only look into this option once you have already done an ESA or 529 or if you don’t qualify for the ESA. In essence, this is a mutual fund the beneficiary can use for whatever purpose they deem beneficial, whether it is for educational purposes or not.

How to Pay off Student Loan Debt Post Graduation

If you have to acquire student loans during college, Dave Ramsey has a system in place that helps pay off that debt quickly. In his book, Financial Peace, he focuses on a budgeting system that uses a “debt snowball method” to help with financial recovery. In essence, you pay off your lowest balance first while continuing to pay the minimum amount on all other debt. As you pay off one debt, you move to the next lowest balance until you have “snowballed” to a complete debt payoff.

Conclusion

Financial preparedness when planning for college, actively enrolled, or post-graduate is a topic discussed in the following books recommended by Dave Ramsey; The Graduate Survival Guide and Debt-Free Degree. That is a great place to start when you have decided to take the steps in securing your freedom from debt while planning for your college expenses. With enough guidance, self-control, and drive, Dave Ramsey’s budgeting system can help you take control of your finances as a college student.