Becoming financially independent for the first time can be an exciting but overwhelming time. Whether you’ve received your first pay cheque or student loan instalment, it can be tempting to spend it all at once. But in reality, you’ll need to dedicate a significant portion of your income to rent, food and bills.
Research shows that 78% of students worry about making ends meet. Despite this, one in five have never budgeted.
After the essential costs have been paid, it’s important to devise a plan of how to utilise any spare money. Instead of impulse spending, you’ll thank yourself later for learning how to balance saving for your future with buying the occasional treat.
To find out the best ways to budget, save and spend money we decided to seek advice from the experts.
Caroline Domanska—income strategist and founder of Money Mindset Coach
Dennis Harhalakis—founder of Cambridge Money Coaching
Ashley Tate—chief executive officer at online student bill-sharing tool Split The Bills
Claire Roach—money-saving blogger and owner of Daily Deals UK
Being aware of your fundamental expenses is the first way to take control of your finances. This will help you avoid spending beyond your means and reach long-term goals.
Recent findings from NatWest revealed that 42% of students don’t use any budgeting methods to help their money go further and 6% said they don’t consider what they’re spending at all.
Claire: “Every single student I know has blown most of their student loan on holidays, nights out and new clothes. The best way to avoid this is to plan your budget in advance.”
To begin your financial plan, assess your monthly income. This is especially vital if you work freelance or rely on tips. If you earn more than expected or have a slow month, it could affect your budget for the following month.
Use a notebook, online spreadsheet or budgeting app to make a note of your monthly financial obligations and subtract this amount from your income.
Claire: “Ensure you pay your bills and make any essential purchases the day you get paid so you don’t have lots of cash in your bank account to tempt you into non-essential spending.”
This can include rent, bills, student loan payments and insurance premiums.
Ashley: “Seeing your spending habits written down can be a wake-up call. If your budget amount outweighs your income, something needs to go. Be honest with yourself about what you can actually afford and what you can live without.
“The budget might highlight areas you could cut costs. Small purchases, like a takeaway lunch or a morning coffee, might seem harmless but they can add up to a surprisingly large fee.”
After factoring these vital payments into your budget, your next priority might be fixed-cost automated payments such as a Netflix subscription or gym membership.
Dennis said: “Most of it is common sense and maths, but budgeting is also an emotional process which can be challenging. It’s also difficult if you’re flat-sharing with friends or a partner who might have different views and priorities.”
When you begin the next month’s budget, consider what worked and what didn’t. You might decide to make adjustments as time goes on if your financial priorities change.
Be aware of how much your utility bills cost, and keep track of any changes. This can be tricky if someone else is responsible for organising these payments. But being oblivious to the exact amount could result in overspending and not having enough to cover the cost.
It may also be beneficial to create a joint account so that everyone can easily check outgoings. But only do this with people who are financially secure and can be trusted to pay on time.
Ashley: “If you share a joint account with someone who has bad credit, makes late payments or if the account goes overdrawn it could impact your credit score. This could stop you from getting a mortgage or even a mobile phone contract in the future.”
If all payments come out of one person’s bank account, it can be difficult for everyone to keep track of the costs. If anybody doesn’t transfer their share of the bills on time, the responsibility falls onto the account holder.
Ashley: “If you find it difficult to keep on top of numerous different bills, use a bill-splitting service that puts all utilities into one monthly payment for each person. Only having one cost to consider makes budgeting much simpler.”
If you have any money left over, envisage your saving goals and work them into your budget.
Caroline: “I’d look at all the things that are important to you in the short, medium and long term and allocate some money to each. Put some money in a different bank account that’s harder for you to access.”
Saving while you’re young will make things much easier when you’re ready to buy a house, get married or are in desperate need of a holiday.
Caroline: “I think Millennials do save but, in my experience, they don’t know what to do with the money and the housing market, so the money just sits in cash and then tempts spending.”
A report from last year found that 53% of 22- to 29-year-olds had no money set aside in a savings account or an ISA (individual savings account) between 2014 and 2016.
Caroline: “My philosophy is that you can spend your money how you like, but ideally you could be doing a little bit of everything. It’s this idea of balance and starting small that should be promoted.
“Even if it feels impossible to save for a house or pointless saving for retirement, if you start with something—even £25—it opens the door to the possibility of it happening, and allows you to work on a plan to increase these contributions over time.”
Saving is important, but if it forces you to abandon your social life, hobbies or love for new things, you’ll most likely feel deprived. This can result in reckless, unplanned and impulsive spending.
Dennis: “A good guide is to allocate 50% to needs, 30% to wants and 20% to saving. Automate the savings process and only spend what’s left over. If you want to control your spending, set a weekly allowance, take it out in cash and leave the cards at home.”
Saving less so that you can afford the occasional treat could actually lead to more money being saved in the long run.
Caroline: “Have a fun pot. I’d suggest putting 5-10% of your income into here every month and don’t be afraid to use it. But remember once it’s gone, it’s gone.”
Treating yourself to the occasional swanky dinner or new outfit may seem harmless, but try not to get carried away and always stick to the allocated amount in your budget.
Ashley: “Due to the peer pressure young people often face, or urge to compare ourselves when scrolling social media, it’s hard not to turn to material goods to feel better and develop irresponsible spending behaviour.”
Online platforms such as Instagram and YouTube are brimming with sponsored and aspirational content which constantly encourages people to spend.
Claire: “Social media is so powerful these days. For millennials, it’s a massive part of their everyday lives. From perfect holidays to perfect outfits, there’s always someone posting their new purchases, which the impressionable younger generation try to live up to.”
Australian research from last year discovered 88% of students say social media has some impact on their spending habits, and over a third of students cited FOMO (fear of missing out) and peer pressure from social media as spending triggers.
Caroline: “We often have a false impression of how others live their life. We can assume they have the money to pay for what we see, but it’s not always the case.”
In the 2018 Student Lifestyle Survey,74% of students said they bought new clothes and shoes before moving to university.
Caroline: “Education is needed about living life in your own lane and learning what makes you—not someone else—feel first class. Choose to spend your money in a way that feels good to you.”
Despite what you see on Instagram, most people can’t afford to live the life of luxury. But no matter what other people are buying, it’s crucial that you don’t get swayed to spend irresponsibly. By creating a money management plan, you will find financial stability and prevent making messy mistakes that could land you in tremendous debt.
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