28th August 2015 at 12:22pm
Welcome to your first financial class – now’s the time for you to learn the basics about how to manage your money – money management. University isn’t just about getting a degree it’s about learning smart money habits that will set you up for personal financial success. Let’s have a look at your curriculum:
Lesson one: Budgeting
This is the first thing and the most important thing you need to learn – by the end of your student career you’ll hopefully be an expert. Money management and budgeting can be difficult but there are plenty of online tools that can help you get used to keeping an eye on your finances.
Your budget should track your monthly spending and income – the amount you spend each month should hardly ever be higher than your income.
You can view your debit and credit card transactions to see how much you’ve spent on groceries, entertainment or nights out and you can set up notifications to alert you when you’re close to reaching the amount you’ve allocated for the month. So make sure you stay on top of it and manage your money.
Lesson two: Crash course in credit cards
Credit cards can be useful if you use them properly. They can help you budget and improve your credit rating and spread the cost of borrowing over time. There are so many credit cards out there to choose from so it’s really important to shop around to make sure you get a good deal.
How do they work?
They let you borrow and spend up to an agreed limit then you’ll get charged interest until the amount you’ve spent is repaid.
Your credit limit (the amount you can spend) is decided by the provider and depends on circumstances such as your income and credit history.
The interest you pay (that’s additional money on top of what you owe) will be agreed before you sign for your credit card so always check your interest rate carefully.
Once you start using your credit card you’ll be sent an itemised bill of all your expenditures. Most cards allow a month or so after the bill being issued before any interest is charged. If you always clear your whole balance within this time, you won’t pay any interest. Remember though, repayments won’t go through instantly so make sure you leave enough time to avoid any interest.
You must keep on top of minimum repayments because late payments could lead to notes on your credit file which could affect your ability to take out loans, mortgages and other products in the future.
Lesson three: Personal finance Vs public finances
Understanding how public money is raised and how this relates to your personal finances is crucial. The finances of the public sector includes everything from central government to devolved administrations, local councils and public corporations and the money used to pay for this is raised predominantly through taxes. The UK taxes that bring in the most money are income tax and National Insurance Contributions, which will automatically be deducted from your paycheck. If you’re self-employed you’ll need to ensure you do your own taxes. Other big taxes include corporation tax, council tax, business rates and fuel duty.
Lesson four: Make saving money second nature
Whether it’s to pay off a debt, build up an emergency buffer or to save for a deposit on your first home, one way to make saving easier is to automate your finances. Did you know your paycheck can be directly deposited into more than one account?
You can be clever by making your savings tax-efficient too. Each year you’re allowed to put cash in an individual savings account (ISA), which means it’s safely tucked away from tax demands.
Lesson five: Always think ahead
Once you get into the swing of saving don’t stop there – retirement might seem like a lifetime away but it’s never too early to start preparing. If you’re aged 22 or older and have a job with a salary of at least £10,000 a year, you might find that you’ve automatically been made a member of your workplace pension plan and your monthly savings habit has been started for you. If this is you, you’ll be paying 4% of your salary into a pension by 2018 and your employer will be paying in 3%, too.
The great news is the tax man then tops this up with tax relief – that’s money you’d otherwise never receive.
The information in this blog or any response to comments should not be regarded as financial advice. As with any investment, its value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in August 2015.
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