The world is your lobster
The thought of learning about personal finance may well not enthral you - you’ve only just finished education and don’t want to go back to it! To be honest, it can be pretty dull stuff and there is much on social media about it, but also far more exciting topics that you will engage with more readily. Great we made SaidSo.co.uk mobile compatible! Personal finance education is now being widely introduced in schools, which is great…but a bit late for you, and we do not want you to be left behind, being blissfully unaware of the reality that getting into the habit of planning your money now will bring benefits for the rest of your life.
Other than a bank or savings account set up years ago, your first real brush with personal finance might have been allocating out your Student Loan, or working out what this income tax and National Insurance stuff is that’s been deducted from your cash in your first payslip. I remember being horrified at mine!
We appreciate that it’s early days in your career and hopefully you have some views on which way you want to go and how you will make your fortune…or be comfortable at least. Sure, your social scene will be buzzing and that all needs to be paid for, but taking a bit of time and effort to start early is a must.
One word... budget!
Let’s be honest, you’re probably not flash with cash yet, and those extra few nights out after work could make a bit of a dent in the month’s budget. If you plan carefully, though, you should be able to manage your expectations, pay the rent and still have some funds spare to enjoy yourself. Knowing exactly what you’ve got coming in and what you can expect to go out is especially important when your budget is tight and getting into good planning habits now will help you avoid debt problems and other money worries.
The Money Advice Service offers a great Budget Planner to help you with this – have a look here.
Build up a good credit rating
The temptation to max out your credit card (or cards – you’ll be offered loads when you’re a student) is huge, especially when you’re living on a restricted budget but keen to enjoy the campus social life. If you get into trouble with debt now, it’ll take your credit rating a long time to recover, and this could have the knock-on effect of making mortgage providers wary of lending to you. It can be good to have a credit card, as sensible borrowing helps to build up a good credit rating – just make sure you pay it off in full every month, as the interest is usually very high.
Your first ‘real’ job – what are the extras?
You’ve got your first job – it’s all a bit new but definitely exciting. Your employer will probably have signed you into their auto-enrolment pension plan if you’re earning enough and you’re over the age of 22. It’s worth staying in the plan if your budget allows – your employer and the Government both pay in as well as you, so it’s effectively ‘free money’. Your older self will thank you for starting retirement planning early!
It’s also good to check whether your employer offers any protection, such as death in service or ill health cover.
Think about putting away some savings
The SaidSo team knows that putting some money aside each month can be a bit of a squeeze on your finances along with trying to pay the rent, car costs, keeping food on the table and so on. If you can, though, saving early will allow you to build up a fund for emergencies (really important) and hopefully some extra cash for longer-term needs, such as a house deposit. Use your ISA allowance where you can each year to ensure your savings are tax-efficient. The normal ISA allowance is £20,000 in the current tax year 2020/2021 and it is also worth looking at the Lifetime ISA, or considering saving into an existing Help to Buy ISA, particularly if you’re starting to think about saving for a first home. More info here and here.
Once you’ve built up some savings, you’ll need to start thinking about where these should be invested. Have you considered your attitude to investment risk? It’s an interesting process and very important to ensure that your money is invested appropriately.
There is an Investment Risk Scale on the SaidSo.co.uk service
Loan Costs & Repayment
Student loan repayment normally starts once you begin earning over a certain amount. Lots of detail on rates and thresholds can be found here. Be ready for this if you find your income going up, and then going down with the start of your repayment.
The earnings thresholds are:
£404 a week
£1,750 a month
£21,000 a year
You pay 9.0% of anything you earn over the threshold of £21,000 gross per year. Be ready for this if you find your income going up, and then going down with the start of your repayment.
If you’ve taken on other loans or debt, look at the interest rate you are paying to ensure that you could not cut the cost of interest with another lender.
Watch out for penalties and a great website to check all the things you should be looking at and the priorities to consider here.