With university fees of up to £9,000 a year and predictions that students might be paying back their loans in their 50’s, financial planning after graduation has never been more important.
This blog article will explore the top ten most important financial considerations for new graduates and the spending, saving a borrowing pitfalls to avoid.
No New Debts
Leaving university with potentially a lifetime of debt in tuition fees means that new graduates need to be especially careful not to take on any new debt.
Taking out credit cards, hire purchase agreements on cars or buying any other big ticket items on instalments, can leave you over-burdened by debt and any disposable income you might have will be sucked up in repayments.
Leave Mortgages For Later
In the long run it always makes more financial sense to own a property than to rent it, but for new graduates, the costs involved are huge.
Stricter lending rules and spiralling house prices mean that for many graduates, home ownership is prohibitively expensive, but it also presents an obstacle to job mobility.
Recent graduates often need to be mobile to find new career opportunities and a property can tie them down.
Pay Off Your Debts
The longer you are in debt, the longer you will be working hard to pay interest, so your first post-graduation priority should be to get out of debt as quickly as possible.
In order to pay your debts most effectively, start with the highest interest debt first (typically this will be a credit card, store card or personal loan), and then pay off lower interest debts like student loans later.
At university when funds are often short and there are constant demands on your income, there is little scope for saving.
However, after graduation, it is one of the most important habits to get into. Having regular savings, even if you are putting away a small amount each month is essential; as your income rises, so does the temptation to spend it.
You will need to protect your savings from taxation and the best way to do with is with an ISA or NISA.
You might have previously wondered ‘what is an ISA?’ or ‘how does an ISA work?’. It is a savings account which has an annual tax free allowance of £15,240.
Avoid Credit Cards
As previously mentioned, debt is a way of draining the lifeblood from your finances and a credit card can often be the quickest way of building up a debt burden for the future.
The best time to own a credit card is when you can be sure that you’ll rarely need it.
Pay into a Pension
As with savings, pensions are an important part of your financial future that cannot be neglected. If you have asked yourself ‘What is a pension pot?’, it is time to become more financially educated about preparing for the future.
When you start your first job, investigate the workplace pension scheme, or, if you are self employed, it might be an idea to set up a private pension instead.
It is always worth asking the question, can I be getting more from my pension? Especially when you are reviewing your annual pension statement.
One of the keys to boost your future earning potential is to carry on educating and ‘skilling’ yourself.
The suggestions in this blog involve a degree of discipline with your money and a requirement to budget effectively.
If you don’t have a clearly structured financial plan then the chances of you being able to save prudently are slim.
Have a picture of your income and your expenses, work out what is left (and where you can cut back), and divide that between your savings and pension.
Life is full of surprises, not all of them pleasant, which is why it is important to have a contingency fund.
Most financial advisors recommend that you build your emergency reserves enough for three months of living costs or the equivalent of three months salary.
For most people, this can’t be done overnight and requires a long term commitment to saving.
The advantage is that savers with cash reserves are less financially insecure if they become unemployed and don’t have to take the first job on offer.
Invest if you can…
Creating a strong financial basis for the future often means investing spare cash prudently and watching these investments accumulate value. After ensuring your financial stability, you might be thinking ‘Where do I Invest for growth?’
If you have managed to pay off debt and accumulate some savings, adding to a portfolio of investments is one of the best ways of making your money work effectively for you (though the value of investments can go down as well as up).
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.