9 Essential Money Management and Finance Tips for School Leavers
The ability to manage money is arguably among the most important of the practical life skills you need to develop, yet it’s not one that’s taught in schools.
We’re often expected to work it out for ourselves once we start at university or get a job, and many people end up learning about the importance of careful money management the hard way. With today’s generation of students leaving university with more debt than ever before, and entering the job market in an economic climate only just recovering from the effects of a recession, you’re going to need financial acumen more than any other generation. In this article, we’re going to tell you a few things about money and personal finance that you might not have known, and explain how you can develop your financial intelligence while you’re still at school.
What they don’t tell you about money
University is meant to prepare you for the real world, and to an extent, it does: after all, you’ll be managing your own money and living costs for the first time, and budgeting to ensure that the money you have goes as far as possible. But the world of full-time work can still come as a shock after three or more years of relative freedom and pursuing a subject you enjoy. The amount of financial assistance you receive from your parents is likely to go down once you get a job, and gone are the days when you can enjoy all those student discounts and grants. Instead, you’re left having to earn a living, working set hours, five or more days a week, possibly doing a job you don’t particularly enjoy, possibly even having to share a house because you can’t afford the rents in your local area. It can take some getting used to after the fun you had at university, but it will help enormously if you’re equipped with the right financial knowledge. To get you started, here are some things they don’t tell you about money.
1. You have to work hard for every penny
You have to work hard for your money, and you might end up having to do a job you don’t enjoy simply because it pays the bills. You usually don’t get to choose your hours, and many companies these days expect you to work longer hours than they’re actually paying you for. You’ll have to ask someone’s permission if you want to have a holiday, a day off or even just go to a doctor’s appointment, and you might have to make up the time later. This can be hard to get used to when you’ve been used to the relative autonomy you enjoyed at university, when you could award yourself a day off whenever you wanted to (provided you didn’t have any lectures to go to). But you can’t complain, because you need the money.
2. A hefty chunk of your money will go to the Government
It’s a satisfying feeling when you get your first pay slip after a month of work, in your first full-time job after university. But then you look at it more closely and you see that there’s a lot of money missing from it. Income tax and National Insurance Contributions will both have come out of your pay packet before it reaches you, and if you’re enrolled in a company pension scheme then even more money will come out automatically to pay into that. Once you’re earning over the £21,000 threshold for student loan repayments, those will also come out. On top of that, you’ll have to pay Council Tax separately with what’s left of your pay packet. After a while, all this will become routine; but it’s a bit painful to start with!
3. Life is expensive
After all these various chunks of money are taken out of your pay packet, what’s left is what will pay for you to live. Even when you’re very careful what you spend, life is costly, particularly with the cost of living rising all the time – often faster than wages. Here are some of the expenses you’ll have to factor in:
- Rent or mortgage
- Utilities – gas, electricity, water
- Home and contents insurance
Car, including fuel, insurance, tax and MOTs
- Television licence
- Phone bills (landline and mobile)
- Food, drink and household goods
- Luxuries, such as holidays, gym membership, dining out or days out
You’ll have been used to having your parents pay for all this, and you might not even have considered some of these expenses before, even when you were at university (if you were living in student accommodation, utilities and internet would likely have been included in your rent). This list should make you appreciate the importance of budgeting, which we’ll come onto later in this article.
4. Very few people understand the ins and outs of tax
Very few people understand tax codes, but being on the wrong one can mean you end up paying too much or too little tax. The former will be a problem initially, but you’ll get a windfall later; the latter will make you think you have more money than you actually have, and so can lead to an unpleasant tax bill to make up the shortfall later. You’re automatically assigned a particular tax code depending on various things, such as your employment status. You’ll be put on what’s called an emergency tax code if you don’t have any previous tax information to give to your employer; this might mean you end up paying more tax than you should, in which case it’ll eventually be refunded to you.
5. Your student loan will never go away
It was already true of previous years of students, but it’s especially true of today’s students thanks to much higher tuition fees. The unfortunate reality is that you’re going to be paying off your student loan for many, many years to come, and for that reason, it’s best simply to forget about it. It’s not like other debt; it’s a low-interest loan, and the repayments come straight out of your pay packet before you even see the money. You’ll see it on your payslip, of course, but you don’t physically have to pay it yourself (unless you’re self-employed).
6. You have to start thinking about retirement now
It’s decades off, and so far in the future that it seems scarcely worth a second thought, but developing financial intelligence also means thinking about the future. Funding retirement is going to be a bigger concern for the present generation, for whom the State Pension may not even exist by the time they reach retirement age, and if it does, it won’t be enough to live on. When you start work, you’ll be introduced to the company’s pension scheme, and once you become part of that, that’ll be yet another chunk of money coming out of your pay packet each month. On the plus side, your employer will also contribute to your pension, so they’re helping to fund your future as well.
7. Credit cards and overdrafts aren’t there to let you splash out whenever you like
Many people make the mistake of assuming that credit cards and overdrafts are there to allow them to indulge in a shopping spree whenever they fancy, or a holiday they can’t afford. Those who are sensible with money understand how easy it is to get sucked in by credit cards and overdrafts – and they understand the fact that you end up paying back a lot more than you originally spent. Debt can rapidly spiral out of control, so you should only ever use credit cards and overdrafts as a temporary solution, when you’re sure you’ll be able to pay the money back quickly (within a month).
Credit cards are also useful for certain kinds of payments, such as holidays, as they offer a bit more consumer protection than debit cards and other kinds of payments; you can claim back money if you’ve been mis-sold something, or you haven’t been provided with what you paid for. If you’re likely to need an overdraft, you’ll need to make sure it’s planned (that is, agreed with your bank) and that you know what the fees are; these can soon mount up for unplanned overdrafts, for which you may be charged a daily fee for each day you’re using your overdraft.
8. ‘Pay day loans’ should be avoided at all costs
There’s been a lot of bad press about so-called ‘pay day loan’ companies recently, but as a school student that might have passed you by. Pay day loan companies prey on those who’ve run out of money before pay day, lending them fast cash to bridge the gap, even if the borrower has a poor credit rating. The problem is, the interest rates on these loans are so high that a £100 loan could run up thousands in interest. Such companies should be avoided at all costs.
9. You don’t get much interest anymore
While pay day loan companies charge extortionate rates of interest on borrowing, interest rates on current and savings accounts have fallen dramatically in recent years, which means your savings probably won’t grow by more than a few pence a month. You can stick your money in a high-interest savings account, but you may not be able to access the money for a fixed time, possibly years; and when you’re only just starting out in life, you need to be able to have access to your money for pressing things such as rental deposits. Of course, in the beginning, you may not be able to save much at all; but as you move up the career ladder and start enjoying a significant amount of disposable income, such concerns will come into play. It’s therefore important to shop around to find the best deal when you’re looking at bank accounts, and to read the small print.
How to develop financial intelligence
We didn’t mean to sound all doom and gloom with the last section – but it’s important to be aware of all this early on, so that you are able to develop the attitude and skills needed to be sensible with money. In this final section, we look at a couple of ways in which you can develop your own financial acumen, starting now.
Get a part-time job
One of the best ways to start getting used to the idea of managing your own money astutely is to get a part-time job. As well as getting your National Insurance Contributions started off nice and early (the number of years you’ve been paying these determines when you can claim your State Pension later in life), getting a part-time job will also introduce you to the idea of pay slips and the different amounts that you’ll see coming off them. While you won’t have to think about all the expenses we outlined earlier while you’re still at school, you can still practise budgeting by allocating yourself a weekly amount of spending money from your part-time job and sticking to it. See if you can divide it up between things like buying snacks, going out with your friends, and other expenses, with a bit put to one side in a savings account.
Download a budgeting app
There are numerous free budgeting apps available for smartphones that can get you thinking about money in the right way. These normally allow you to add in expenses for things you’ve bought, and income that you’ve received (whether that’s pocket money from your parents, earnings from a part-time job, birthday money or any other source of cash), so that you can weigh up your expenditure against your income. You can normally categorise your expenses on these apps as well, which will allow you to view reports and graphs that tell you where your money is being spent (40% on food, 20% on cinema and so on). You can allocate a budget for different areas of expenditure, and it will tell you whether you’re sticking to your budget or exceeding it. It may not seem worthwhile now, but getting into the habit of budgeting, and recording and categorising your expenses, will stand you in good stead for when you have to manage your own money at university and beyond – when mistakes can be much more costly.
Money and finance are nothing to be scared of, but you do need to be sensible and be aware of the pitfalls of the personal finance market. The ability to manage money is a crucial life skill, and as such, the sooner you’re able to start developing the necessary knowledge, the better.