How to ensure you always have enough money to buy what you need.
If you start university without a budget, or none at all, and no understanding of how to manage your finances, it's easy to rack up large debts. These can be difficult to handle by the time you've won your graduation hat. Indeed, your bad money habits are liable to continue for many years afterwards.
The word ‘budget’ may fill you with dismay. But it’s actually very easy to figure out a budget. The hardest thing is sticking to it. But if you put the effort in, you will be rewarded with much better finances at the end, and probably have fewer miserable times worrying about money!
With this in mind, here’s some in-depth help on how to figure out your student budget:
Your Income
In order to budget effectively, you must make sure your monthly incomings and outgoings balance up. So your monthly budget should be the same as your monthly income – no more or less.
Here’s how to work out the size of your monthly income:
Student loans
You'll surely have been told all about student loans already, but, to summarise this loan is the cheapest debt you can get (other than loans from family), as you're just charged interest at the rate of inflation (rising prices). The terms for paying back this loan are favourable too, as you need not commence repayments till you're earning £15,000 per year. Also, you only pay back 9% of what you're earning over the £15,000 mark, e.g. if you're earning £16,000, you pay 9% of £1,000, which is £90.
Full-time students can get a student loan for tuition fees. In 2010/2011, you can receive up to £3,290. The amount you receive depends on the size of your university’s tuition fees, but the loan should always cover the full amount of fees you are charged. This loan will be paid directly to your college or university.
You can also take out a student loan for maintenance. The amount you will be offered depends on your household income (for most students, this means your parents’ combined income).
Student loans are paid in three installments at the start of each term.
It can be tempting to take your loan and squander it but, if you think about it, your student loan is rather like a salary. It's not free money, as you have to earn it by working for a living, i.e. completing your course. For many students, it's a vital tool for paying for the basics, so don't get carried away!
Money from relatives and the Government
It goes without saying that hand-outs from parents or other relatives is the cheapest source of income for you, presuming they can afford it. If they can, ask them whether they would be willing to set up a regular direct debit into your bank account, so you know exactly how much you will receive and when. This should allow you to plan your finances more effectively.
What if you don’t have unlimited access to the Bank of Mum and Dad? If your parents collectively earn less than £50,020 and you started your course in 2009, then you qualify for a non-repayable grant of up to £2,906 a year from the Government.
The rules are different if you started your course before 2009 - click here for more details.
Sadly, if you are given a grant, this will affect your entitlement to the student loan for maintenance which I mentioned earlier. For every £50 you are awarded, the amount you can borrow will be reduced by £50.
But still, it is definitely worth opting for the grant instead of the loan. Visit the direct.gov.uk website for more information about how much you are entitled to.
Finally, remember that at some universities – particularly the well-off ones like Oxford or Cambridge – you may be able to apply for an extra bursary for help meeting your bills.
Part-time or holiday work
Realistically, you'll probably need one. You might choose to work during holidays, in the evenings or at weekends. Or possibly all three!
The national minimum wage for workers aged 18 to 21 is £4.83 an hour, rising to £5.80 an hour once you turn 22, and you can earn up to £6,475 free from tax, this tax year (6 April 2008 to 5 April 2009). Find out more about the tax situation for students on the HMRC website.
Here are some recruitment websites that should be able to help you in your quest for employment:
What is NOT your income?
There are two further sources of funds which are available to you while you are at university:
- Your credit cards
- Your overdraft
However, these are NOT part of your income – they are debt. And unlike a student loan, the interest rate you can end up paying credit card/overdraft debt can be extortionate. Read This dangerous mistake could cost you £10,000 to see how much it could end up costing you.
Credit card spending
Of course, just because it’s not wise to borrow on a credit card, it doesn’t mean you shouldn’t spend on one. There are three good reasons to use a credit card for purchases:
- You get better protection if you use a credit card rather than a debit card. If you purchase something costing £100 to £30,000 with a credit card, you can claim against the card issuer if something goes wrong, such as the supplier going bust.
- If you select the right card you could buy goods and pay for them months later without paying interest, or you could be rewarded with store points or cashback without paying interest.
- By using a credit card, you will build up a good credit history, which shows you can handle being offered credit responsibly. This is important if you ever want to borrow later in life, for example, to buy a car or a property.
You just need to make sure that when you spend on your card, you are still sticking to your budget and can pay off your balance in full every month. That way, you will not fall into debt.
Overdraft spending
Banks will fall over themselves to offer you an interest-free overdraft in the hope that you will borrow all the money they offer – because, once you graduate, they start charging you a hefty rate of interest.
But you can play them at their own game and make money out of them – again, as long as you budget effectively and do not spend more than your income.
Confident you won’t? Then put the interest-free money you are offered in a high-interest savings account.
Just be careful to:
- Keep a buffer of at least a few hundred pounds of interest-free overdraft in case an unexpected bill comes in.
- Consider where to put the money carefully. If you put the money in a fixed rate bond, you won’t be tempted to spend it because you can’t access it. However, if you keep the money in an instant access savings account, you can get at it in an emergency if you really need to. So it may be worth splitting the money into two separate kinds of savings accounts.
- Make sure you pay off the overdraft before the 0% rate disappears – usually this happens shortly after you finish your finals, but check with your bank to be on the safe side.
So that’s your income sorted. But what about your spending? How much do most students spend at university? And how do you draw up a budget anyway? Read on to Part Two…