The essential guide to graduate finance
If you graduate from university this summer, chances are you're feeling pretty nervous about what happens next.
Not only is it scary to have to leave behind the life you've built during the three or four years of your course; this year, it's likely to be more difficult than ever for fresh graduates to get jobs.
With the UK deep in recession and unemployment still rising, the last thing any university leaver needs is to get into a muddle with their money. But I know from bitter experience that, despite all the jokes about student spending, it was after leaving university that I made my daftest financial decisions.
As always, I want to help others learn from my money mistakes.
Here are the seven things I wish someone had told me the year I graduated.
1. Make a plan for ditching your overdraft
Most student current accounts come with a 0% overdraft which lasts for the duration of your course.
However, as soon as you graduate the clock will start ticking on your 0% deal.
It's likely your bank will allow you a limited period of time to repay what you owe, after which interest charges will apply. Therefore, it's important that you check the terms and conditions of your account and work out how long you have before your overdraft will start costing you money.
Make a plan to repay your overdraft within that period. Don't forget, though, that there is no reason to stick with your bank just because you're overdrawn.
You may be able to find a longer 0% deal by comparing current accounts and switching to a different provider.
The Abbey Account (Preferred Overdraft Rate), for example, will match overdrafts of up to £5,000 when you switch to it and typically charges 0% on overdrafts for 12 months. To qualify for this deal, you'll need to pay a minimum of £1,000 a month into the account.
2. Don't be tempted by a graduate loan
Banks offer students 0% overdrafts because they believe graduates will be profitable customers later.
Therefore, don't be surprised if your bank offers you a graduate loan merely minutes after you've donned your cap and gown.
Before jumping at the chance to clear your overdraft in one fell swoop or grab enough cash for a holiday, consider: do you really need a loan?
Also, look at the terms of the loan you are being offered. Is it really a competitive deal?
Think twice about taking out another loan, and if you really need to borrow don't jump at the first deal your bank offers you. It's a good idea to compare loans from a variety of providers before signing on the dotted line.
3. Approach credit cards with caution
If there's one crucial credit card fact you should remember, it's this: it is incredibly expensive to be in debt on a credit card charging a standard APR (typically around 17%).
If you need a credit card for borrowing, try to grab one with a 0% on purchases period. You can find out how these work by reading this article.
Alternatively, if you're planning to use a credit card for everyday spending and will repay your balance in full each month, you might want to consider using a cashback or rewards credit card. This article explains how a cashback card could earn you hundreds of pounds a year.
However, if you have never borrowed before your credit history may be so short that lenders are reluctant to offer you their best deals.
In this case, a carefully handled credit builder card could help. More information on how to use these cleverly is available here.
4. Be prepared for bigger bills
Leaving full-time education opens the door to a number of bills you're unlikely to have faced before. Key among them is council tax.
It's a good idea to find out how much council tax you'll have to pay on any property before you agree to rent or buy it. Depending on where you live and the council tax band your home belongs in, the bill could make a big difference to your budget.
It's also worth bearing in mind that your spending on essentials such as rent and travel may increase after graduation – particularly if you move to a big city like London to start work.
5. Make a realistic budget
Budgeting is an important part of setting yourself on the financial straight and narrow after graduation. Knowing how much cash you have coming in and going out of your accounts each month is vital if you are to keep on top of your bills, make any necessary debt repayments and avoid spending more than you earn.
Researching how much money you'll need for essentials (such as those above) is crucial if you're to make a realistic budget. Keeping a spending diary for a week is also a useful way to work out where you might be splashing too much cash.
It might seem a dull prospect, but setting aside a few hours to trawl through your bank statements and create a proper spending plan should pay dividends in the long run.
If you fail to budget, you won't be fully in control of your cash – and it's far more likely you'll drift into debt.
6. Get to know the tax man
When I received my first proper payslip, I was horrified. Between them, income tax and national insurance had claimed a huge chunk of my hard earned cash!
However, there is no reason why today's graduates should face the sort of shock I did. It's easy to work out how much of your salary you'll receive after tax using a smart website such as www.listentotaxman.com.
Remember, understanding how much tax will be deducted from your earnings is vital if you're to ensure your budget is accurate.
What's more, knowing how much tax you should be paying will help to make sure you aren't assigned an incorrect code or over-charged.
7. Don't worry about your official student loan
Finally, it's important not to panic about paying back your official student loan immediately.
Remember: you won't be required to make repayments until you are earning £15,000 a year, and the amount you are charged each month will be calculated in accordance with your salary.
What's more, from September 2009 the rate of interest charged on official student loans will be 0%.
In my view, ex-students should prioritise paying back their overdrafts and any other student debts. Conversely, I don't believe there is any reason why graduates should push themselves to repay their official student loans early.
You can find a full explanation of why in this article.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
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