Study hard to make the best of student finances

Going to university may be an exciting prospect, but it can also be a daunting one. And the challenges don’t come much bigger than getting to grips with your finances – dealing with banks, accommodation costs, living expenses, budgeting and debts. For many students it will be the first experience of taking full responsibility for their money issues.

This can be a recipe for trouble, leaving you with a financial hill to climb years after leaving education. But it doesn’t have to be that way if you follow a few basic rules. And it doesn’t have to be about not spending any money on treats or going out.

Whether it’s the bank account you use, the way you manage your day-to-day finances or deal with problems when they arise, there are steps you can take to help you keep on top of your money. Here are some of the key areas you need to get right:

1. Budgeting is best

This is a powerful skill that will stand you in good stead later in life. It’s all about knowing how much money you have coming in and what you have going out – simple, but too often ignored.

Once you have established where your money is going you will have a better idea of how much spending money is left and of any savings you can make. You’ll have a clearer picture of your finances, showing both the possibilities and limitations.

Derek Smith, director of Edinburgh-based IFA Melville Hutchison, warned that failing to budget could result in over-spending and long-term debts.

He said: “Don’t stick your head in the sand, open your bank statements and make sure you know how you are fixed. Sitting down with your parents to devise a budget is a good starting point in making sure you maintain control of your expenses.”

2. Pick the right account

Banks are climbing over each other to attract students, all too aware that many will become customers for life. Their offers tend to be built around perks from free iPods and laptops to travel cards and insurance discounts. But these are mere gimmicks and there are more important factors to look at, so do your research carefully.

A lot of students soon find themselves relying on overdrafts to make ends meet, so picking the right account could save a lot of money over the long term. Kevin Mountford, head of banking at Moneysupermarket.com, advised shopping around for an account with a decent overdraft limit and a competitive interest charge.

He added: “It’s also worth nothing that zero per cent deals on overdrafts tend to expire after graduation, so students need to plan how they are going get themselves back into the black, or could risk facing additional interest payments.”

A competitive overdraft rate can produce impressive savings. For example, a £1,000 interest-free overdraft would save you almost £100 every year compared with an account that was to charge you interest of 9.9 per cent for authorised borrowing. Bank of Scotland and HSBC will lend up to a maximum of £3,000 interest-free, although the charges can be steep if you exceed that limit. Unauthorised overdraft fees vary widely, with the 8.2 per cent Lloyds TSB rate comparing well with the 24.2 per cent Bank of Scotland interest rate.

But just because you’ve signed up for an account doesn’t mean you have to remain loyal – it’s worth comparing the different accounts offered every now and again.

For example, the free overdrafts on some student accounts are reduced each year, so if you use the full overdraft limit you may benefit from finding a more generous account later in your university career.

If you’re in the minority and able to stay in credit, look for an account with a decent interest rate on that balance. Most accounts pay a paltry 0.1 per cent, but HSBC and Santander pay 2 per cent on amounts up to £1,000 and £500 respectively.

3. Manage your debts

Debt will be a fact of life for most students over the coming years, regardless of fees. But there are ways to keep those debts under control and avoid being overwhelmed by them.

A key part of this is budgeting, but it also means being canny when it comes to overdrafts, credit cards and loans, which are likely to come into play over the university years. Bear in mind if you haven’t taken advantage of student loans that these are cheaper forms of borrowing than bank products.

Smith said: “Avoid credit cards if you can as they are very easy to amass large debts that will take forever to pay off. You will always be surprised at how much you have spent.

“Banks can offer very tempting loans; again, avoid them unless the situation is grim, in which case speak to parents or advisers before committing. There may be alternative methods of raising the cash.”

The best option is to take advantage of an interest-free overdraft, of which there are several available, but that’s on the proviso that you repay it before the interest-free term is up.

If you have no choice but to use a credit card, make sure you understand what you are getting into. Also keep in mind that it may be on plastic but it is a very real debt, so check the interest charges, keep tabs on how much you’re spending and pay off as much of your balance each month as possible.

4. Cover is worth coveting

It MAY sound unlikely but you should think carefully about taking out contents cover. This has become a bigger priority in recent years, with students increasingly likely to own expensive goods. And with student houses often a target for burglars, failing to insure those items can prove costly, said Mountford.

He said: “It’s vital to take out adequate insurance to protect belongings such as iPods, laptops and mobile phones, and one way to bring down the cost for this cover is to add students to their parent’s contents policy.”

He also advised checking the small print closely because the level of cover can vary significantly between companies.

And he added: “Students may also find it worthwhile looking at providers such as Endsleigh which offer specific student insurance policies.”

There’s a good chance your contents are covered by your parents’ home insurance, but around one in five policies exclude student belongings.

Mike Powell, at financial researchers Defaqto, said: “Although many policies will offer cover as standard, some policies will need to be extended to protect student possessions, while a notable minority of policies will not extend cover to students at all. An additional issue is that even where contents policies do offer cover, there is wide-ranging variation in the level of protection that they provide.”

5. Don’t suffer in silence

At SOME point over the next few years you may find yourself in some kind of money crisis, whether over debts, rent, bills or spending that has gone out of control. If you feel like you’re struggling with money there’s one important rule: get help.

When you feel like your finances are in danger of being out of control or if you’re stressed with money worries, the worst thing you can do is to pretend there’s nothing wrong.

There are numerous services you can go to for advice and support, both within the education system and outside, including Citizens Advice, the Consumer Credit Counselling Service and Money Advice Scotland. For contact details, see the panel with the feature on the next pages.