Student Finances and Budgeting

Yawn. This is what you might think when we start discussing budgeting, but do not be mistaken, ensuring that you manage your finances effectively can make the difference between completing your degree or diploma with the rest of your friends and dropping out of university on your own because you couldn’t afford to feed yourself.

Some students are more fortunate than others and will be receiving financial help from family or funds. Others will be borrowing the largest sums of money that they have ever borrowed so far in their lives (and just wait until you get a mortgage!), accruing debts that will last for years after graduation. It took me almost 8 years to finish repaying my Student Loan! Whilst the repayment of any long term, low interest loans such as Student Loans may be at the deepest depths of your mind right now, you’d be doing yourself a favour by reminding yourself when you’re trying to decide between the Gucci sunglasses or the Prada bag.

Do you know how much money you have as income each month? Do you know exactly how much you spend on the essentials like food and accommodation? Let’s face it, most people reading this will not have a detailed breakdown of their incomings and outgoings. Even if you have a budget set out, do you stick to it?

Okay. Let’s presume that you’re leaving home and are university bound, ready to take on the world. Now let’s discuss how to make sure your finances don’t prevent you from staying there!

Setting a budget is not a difficult thing to do. If you’ve got access to a spreadsheet application then great. If all you’ve got is an A4 pad from the Stationery Box then don’t worry. Creating the budget plan is the easy part. Being disciplined enough to stay within it is the hard part. If you haven’t tasted university life yet then you may not understand, but once you start buying books, meeting people and going out then you will thank me for taking you through this (I happily accept most major credit cards and beer vouchers through the post!).

Firstly, some thinking. Determine exactly how much money you’re going to be receiving each month (doing it monthly gives us more meaningful numbers and allows for weekly fluctuations). Whether it be from a loan, savings, or family, just come up with a ballpark figure. Then create a list of all the things you think you’ll be spending on in any given month. At this point, it’s worth asking someone who owns their own house what they have to spend on. Try your parents as they’re more than likely willing to make you feel guilty about how much time you spend on the phone or how much more it costs them when you don’t switch off the lights.

Here’s a sample list of things for you to consider. Note that we’re not providing any figures because these can vary greatly from person-to-person and different locations.

Incoming

  1. Student Loan
  2. Family contribution
  3. Wages
  4. Other

Outgoing

  1. Tuition fees
  2. Accommodation fees
  3. Electricity
  4. Gas
  5. Water
  6. Landline telephone
  7. Mobile telephone
  8. TV licence
  9. Insurance
  10. Transport (if you are taking your own car then break this down further e.g. petrol, road tax, insurance)
  11. Toiletries
  12. Laundry expenses
  13. Clothing
  14. Course books
  15. Internet connection
  16. Entertainment (think about all of the things you do for fun e.g. cinema, booze, clubbing, magazines, cigarettes)

Once you have your list, input it into your spreadsheet or pad and starting assigning some values to them. Sum up your expected outgoings and subtract them from your incoming. Hopefully, you’ll have a positive number left over. If not, then it’s time to start pruning that outgoings list and dropping what you can or start thinking about earning some extra money from a part time job.

If you’re already working and still feel uncomfortable about your finances then try speaking to your Student Welfare Officer. They might be able to give you specific advice about your given situation. It’s also worth speaking to your bank’s student advisor as they will often arrange for things like interest free overdrafts.

A general word about credit cards. It’s more than likely you’ll open a student bank account once you start your course. There are many benefits to be had including free banking, interest free overdrafts, cheque book, debit card, free advice, pens, balloons… So it makes good sense to do so. Often, banks will also start to offer you credit cards and these can be a mixed blessing depending on how you use them. They’re often fee-free and may come with perks such as redeemable points or free insurance. They can also be a good way to start a credit file on yourself so that when you come to request a large loan e.g. mortgage then the lender will have some frame of reference to look back upon. Of course, this can be a bad thing if you default a lot and never meet your minimum repayments. If you can use them sensibly i.e. only use them to buy things that you can afford so that you pay off the full balance each month. Be aware that it becomes all to easy to start maintaining a balance on your credit cards. As a result, you’ll start paying interest at relatively high rates.

Whatever you do, don’t take the hiding-under-the-blanket-will-make-it-go-away approach because racking up huge amounts of debt now will come back to haunt you at some later date. Of course, I want you to enjoy yourself, but just be aware of your (financial) limits!

4 Things You Can Do to Control Personal Finance, and Not Have it Control You

Personal financial literacy isn’t something taught in school. We often develop personal financial habits from our parents.

This could be a very good thing or very bad thing, depending on how well your parents managed their personal finances.

Money however is a very sensitive topic for most people and most culture. The fact that the subject of money isn’t openly discussed means that it is vital for people understand how to better manage their personal finances.

I hope one day money will be discusses in schools just is how sex education is discussed. Their should be a “Safe Spending” class in school.

Millions of young people are in debt because of lack of financial education. Here are some tips on how to keep your personal finances in order:

1) Get a checking account. First off, if you don’t have a checking account, get one. Your checking account will be the hub of your personal financial management system.

Your checking account is the place where most of your money comes in, and goes out. You use it to deposit your work checks, and to pay your bills.

The benefits of having a checking account far outweighs the drawbacks of potential fees if you don’t manage it right.

2) Balance your checking account. Once you have a checking account, you should always know how much you have in there. That way you know what you can spend, and not have to pay banks over-draft fees which could be anywhere between $10 – $50 dollars.

Make sure you know what’s in there and keep it up to date. With the online financial tools available for you today, that shouldn’t be a problem.

You might even think about keeping a buffer. Like a $50 or $100 buffer, so you don’t go over your limit. You do not want to be squatting $0.00 because you are just one mess up from happening to get hit with banking over-draft fees.

3) Start saving for a rainy day. Do not spend more then you have certainly, but don’t spend more then you make as well. Save up for a rainy day. You should have an emergency savings account, totally at least 3 months of your monthly expenses.

4) Get a credit card. Yes, get a credit card, to build your credit. Make sure the credit card has no membership fees, but if it’s your first card you might have to put up with the fees. If you are a student you can get a lot of student credit cards.

The key with credit cards is to get it, use it for a little, but do not use it habitually. Keep a $0 or a really low balance. If you are using more then 40% of the credit balance you are in trouble. Pay down the balance and stop using it.

Ways to Finance College: Bank Student Loans

Financing an education is a challenge, but bank loans can help. These are loans made directly by lending institutions, usually to supplement money from other aid sources. The details vary from state to state and lender to lender, but the following aspects should be considered before any student signs on the dotted line.

Choosing a Lender

The Bank

There are a number of factors to consider in choosing the bank. For starters, not all banks grant loans to students of all institutions. Any financial institution that will not make loans for school the borrower wishes to attend is not a prospect. The next factor is stability. Almost as important is the lender’s reputation. A check with consumer agencies will reveal any reports of unfair practices such as discrimination or deception about bank student loans. College financial aid offices have valuable information about this. Also consider that may be substantially easier to qualify for loans at one bank than at another.

The Offer

Even if the lender is up to par, one has to consider the particular bank loans on offer. The interest rate is a huge factor. This rate is usually fixed and will be based on the lender’s judgment of the student’s ability to repay bank loans. The primary factor will be the individual student’s credit history. Shopping around is the only way a student can find the best rate.

Rates are not the whole story, though. Students should consider the quality of a lender’s customer service. It should be easy to get answers to simple questions about bank loans and to deal with any problems that might arise. Another thing to look at is the terms of deferment and forbearance, ranging from the date the student will have to make the first payment to the bank’s flexibility if the student’s circumstances change. One should also consider special programs that the lender may offer with their bank student loans. If these are suitable to the student’s situation and result in a lower overall cost, that fact should be taken into account when comparing loans.

Getting the Loan

The Student’s Qualifications

To get loans, a person has to be enrolled in school, of course, but that is not the only requirement. The school itself has to be acceptable to the lender. No bank will lend a student money for a worthless degree that will not help pay off. Usually the bank will want the school to be accredited by a particular authority, and there may be other requirements. In addition, students with loans are expected to make progress towards completion of an academic program. This normally means taking at least enough classes to be considered a half time student. For borrowers seeking loans on their own there are also age requirements, which vary from state to state.

Cosigners

Traditional students, those who have just finished high school, usually have almost no credit history, and they may fall below the minimum age at which it is legal to take out any loan in their state. Even if such a student is old enough to borrow, the interest rate they are offered for loans is likely to be very high, and some students may have difficulty getting approved at all. To qualify and get a better rate, traditional students may wish to use a cosigner for bank loans. This is a person, usually a parent, with a good credit history who agrees to pay off if the student defaults. This is a substantial commitment, and students should think carefully before asking someone to become a cosigner. The cosigner status does not necessarily last for the life of bank loans. Some institutions allow graduates who have made a certain number of payments to apply to release the cosigner from their obligation.

Paying Back Bank Loans

Responsibility

All loans, federal as well as private, have to be repaid. Bank loans do not go away if the student drops out of school The loan still has to be paid, even if the former student cannot find a job. A former student’s income or lack thereof has no effect on the responsibility to pay off loans. The loan will still be there, piling up interest and affecting the borrower’s credit history, until the last dollar is paid. For this reason, bank student loans should be for the minimum amount possible.

Deferment

A deferment is an agreement by the lender to let the student put off making payments on bank loans. It is fairly standard to defer the first payment until a given number of months after the student leaves school to allow time for the establishment of an income that will support repayment. In addition, bank loans may be deferred during military service. One can even apply for a deferment due to unemployment or unexpected expenses like medical bills. It is important to realize interest on bank loans does not stop accruing during the period in which no payment is made.

Forbearance

A forbearance is a continuation of a suspension of payments on bank loans after a deferment ends. While it may be a good thing in certain cases, some lenders have been accused of pushing forbearance just to run up the cost, since interest, of course, continues to accrue. It may be necessary for a former student to negotiate a suspension of payments in some rare cases, but the cost means that this should be done as rarely as possible.

Before taking out loans, a student should consult their families and any financial professionals with whom the family does business, and talk to the financial aid office at the school in question. After getting advice and evaluating all the deals on offer, a student will be well placed to choose the best bank loans for any particular situation.