Are you a UK graduate still carrying the burden of huge debts after studying in one of the most expensive further education systems in the world? Here are several ways to help get a grip on your finances through effective budgeting.
The debt challenge
In 2012, student fees trebled to £9,000 a year and maintenance loans replaced the grants system. Then, in April, a much-welcome change regarding the student loan repayment threshold was introduced. In effect, those who took out loans after 2012 could now begin to earn more before they started making repayments.
The average student debt is now around £50,000, with interest of around 6.1% being added after students receive their first payment. Before graduation, students will have amassed around £5,800 in interest alone.
While any unpaid debt is cleared after 30 years, 83% of graduates are never likely to pay back the full amount borrowed. However, the psychological effects of “being in debt” are, to many people, often worse than the reality of their finances. Student loan repayments can make a large and noticeable dent in monthly wages. So it’s highly desirable to know how to budget effectively and to start making contributions towards a saving account.
Live within your means
Budgeting your monthly income isn’t just about making sacrifices. It’s also an organizing tool that helps you avoid a bigger build-up of debt. It is far better to budget with money that you have than borrowing money that needs paying back at a later date, often with added interest. First, work out what you can reasonably afford and tailor your life accordingly.
Adopt a monthly outlook
Draw up a monthly budget plan based on how much money you have left after your outgoings have been subtracted. Pension contributions, student loan repayments, and tax are all deducted from your pay automatically. Think about how much you need for work travel costs, house bills, food, leisure, and so on.
Budget for rental costs
Often, the biggest payment after graduation is a deposit for rent. This is usually one to six weeks’ worth of rent upfront, as well as the added fees which are charged by the letting agents and residential conveyancing solicitors. Potentially, you will need to factor in the costs of furnishing and decorating your new home. Start saving and budgeting as early as possible.
Pay bills on time
Ensure that you are aware of what is coming in and going out and when no matter if you keep track of your bills online or on paper. Pay towards any high-interest debts as quickly as possible. Don’t fall behind on any debt payments as missing them directly affects your credit rating.
Establishing a good credit rating early on is important for when you want to buy a car or a home and support a family. What you can do now will affect the interest rates you encounter later in life. To make sure that you are paying bills on time, you can sign up to emails or notifications from your bank which remind you when things are due. Regulate your cash flow by choosing your bill repayments wisely, such as setting up a credit card bill on a memorable date in the month.
Make regular adjustments
Some monthly costs are variable, so make sure you review and revise your budget on a regular basis. Even if your income or outgoings aren’t changing, consider transferring money from one category to another.
Take control of your finances
A budget is a flexible, working document for control of your finances. Every few weeks or at least every month, revisit and update it. Ensure that the amounts still seem relevant and manageable. Also, update any of your budgeting tools if necessary and update your calendars so that you have a reminder. Take control of your finances today by better budgeting!
Thanks for this post go to our friend, Natalie Wilson, a freelance writer for many publications specialising in the business and finance sector.