The Money Guide: Common Money Mistakes Students Need To Avoid
We all make money mistakes. It is part of growing up and learning how to look after our finances.
The faster you learn from your mistakes, the better though – right?
Living away in your student accommodation you have found the perfect place to build a life and to put in place positive habits and practices that will stand you in good stead for the rest of your life.
Managing your money takes time and skill, understanding the best approach to your own personal finances, and learning how to spend less and save more money.
Your student finances are very important to your wellbeing, making sure you have enough money to cover your bills and living expenses without impacting your studies.
There are many money mistakes that students make, and we’ve put together some advice on what those mistakes are and how you can best avoid them.
Failing To Set Up A Budget
Setting up a budget is just boring, right? You’ve just moved away from home, and you are away from the tight spending regime of your parents, so why not enjoy your freedom?
We definitely advocate a little spending on treats and luxuries from time to time, there’s no issue with that in moderation at all, but it is important to set up a budget and generally stick to it.
Those students who make money mistakes are those that don’t have any idea of what they can afford to spend and consistently live beyond their means.
Make a general list of your monthly outgoings.
It doesn’t have to get boring and be another bit of work for you to do, and it doesn’t have to be ultra-specific and down to the pennies, but it will help you to get a feel for what you can afford each month.
As we said, allow treats, go on a night out, take a taxi ride every now and then, but make sure anything that becomes a habit doesn’t take you over your monthly budget, every month.
Having No Extra Income
Studies are hard and it should be your main focus during your time at university.
But, for some students, one of the money mistakes that they make is to purely rely on your student loan or savings you have built up before going to university!
If you haven’t got enough money to really do anything other than pay for your essentials and you only study, you’re only really having half the life you could be having as a student.
Finding a part-time job that doesn’t impact your studies is a fantastic way to make some extra money.
This money can be used to spend on the luxuries you allow yourself as part of your monthly budget and it can be put towards savings to help provide you with long-term financial stability.
Finding a way of making money away from your studies can also be a great help in adding to your CV and boosting your career opportunities, or even finding something fun and creative that adds another string to your bow.
Blowing Your Funds On A Big Night Out
One of the biggest money mistakes that students make, especially during the first week or two of term, is to go and blow all of their money on a big night out (or a few nights out).
It’s easy to see why this would happen, you’re in a new town, making new friends and you don’t want to be left out of all the fun.
If you’re not careful you could spend all of your money on Freshers’ Week and be left with nothing for the rest of term.
A night out is just one part of the uni experience, and it should never define your life and budget detrimentally.
As hard as it is, think carefully about when, where, and how often you go for a big night out.
It is possible to go out nearly every night without spending big bucks, but then you have to think about the impact on your sleep patterns and general health, and bad habits.
Choose the right venues and events for your budget, try out a few different types of night out and make friends that don’t pressure you to go out and drink heavily every night of the week.
Creating Bad Credit Card Debt
Your time living away at university is probably the first time you’ll encounter offers of credit cards, whether from your own personal bank or other credit providers.
It is such an easy trap to think of a credit card as free money and a problem for the future you to deal with.
It allows you to buy that brand-new phone, those shoes you’ve had your eye on, that record that’s just come out, without worrying.
Except, at some point, you do have to pay the credit card bill and if you don’t have the money it can lead to debts and a poor credit score.
The easiest solution to this is to refuse to take a credit card for as long as you can.
If you do decide to take on a credit card, treat it in the same way as you would your debit card, only spend what you can afford.
Say you want to buy something, check that you have that money in your bank account and that you could afford to buy it now if you wanted to use that cash.
If you haven’t got anywhere near enough, leave the purchase for another day. Also, make sure you pay off your credit card every month, otherwise, you’ll suffer from a poor credit score.
Withdrawing Cash From Your Credit Card
If you do get a credit card one of the biggest money mistakes you can make is to use it to withdraw cash from a cash machine instead of your debit card.
This is one of the biggest no-no’s on the list, as every time you withdraw cash using a credit card it is a massive red flag to your bank and potential future lenders when they see it marked on your credit file.
It demonstrates that you are likely an unreliable spender and not financially stable.
There are plenty of reasons why you might find yourself in a situation where you want to draw money out of a cash machine using your credit card.
Minimising these situations is key.
The biggest tip is to leave your credit card at home when you go on a night out.
The last thing you want is to drunkenly take out money, forget about it and be surprised when your credit card bill and extra charges appear at the end of the month.
Becoming reliant on store cards and BNPL promotions
In a similar fashion to using credit cards, ‘Buy Now, Pay Later’ promotions have become a popular way for many students to make money mistakes in recent years.
Using services such as this to purchase items of any kind, but especially more expensive, big-ticket items, can lead to long-term debt.
It’s easy to forget about the money you owe until it is too late, and then the interest on top can hit hard. In the same way as a credit card bill, BNPL missed or late repayments can have a negative impact on your credit score.
You won’t know too much about your credit score if you are just beginning your studies straight out of school, but it will have an impact on your borrowing for the rest of your life and covers every financial transaction you make.
With any buy now, pay later promotion, check that you can afford the repayment terms and keep on top of it, looking after your credit score in the process.
Building A Big Overdraft
When you first become a student, you’ll have plenty of offers from banks offering student bank accounts with interest-free overdrafts should you need them.
This is often seen as an attractive option for students and another source of ‘free money’, except it’s not.
Money mistakes involving overdrafts are also common amongst students.
As much as it is nice to have that buffer and safety cushion for the interest-free promotional period, as soon as that ends you will be paying an extra (often large) charge to your bank every month.
If you do open a student bank account that has an overdraft facility, keep it at the lowest amount possible for as long as you possibly can.
Your overdraft should only be looked at as an emergency fund, money to dip into when you really need to, and not just more money that is yours to spend as you want, at any time.
Even with the best intentions of paying down an overdraft, once it’s extended it is hard to do so, so resist the temptation to increase your limit and keep that buffer for an emergency situation only.
Lending Money Without The Funds
This is a really difficult one to deal with in all honesty, as we all like to think we are nice, helpful, would go out of our way to help our friends when they most need it.
Lending money to friends when we can’t afford it ourselves can cause all sorts of long-term issues for both the friendship and your personal finances.
Avoid awkward conversations when you see your friend spending money that you might feel they could have used to pay you back, by not lending them money in the first place.
If you are living on a budget and looking after your money, keep that budget to you, as it does not help you or your friend to lend money that leaves you in a worse position and helps to develop a weird dynamic between you, potentially damaging the friendship in the long-term.
Letting unused subscriptions continue
There are so many subscription services that we are signed up to these days!
In your first days in university, you might sign up to countless societies, take up a gym membership, a monthly cinema pass, sign up to Amazon Prime and Netflix for your own personal streaming pleasures.
It can get out of hand, and if you don’t use things, or forget to cancel during the free trial period of service, the bills can quickly add up.
Always keep an eye on every subscription that you sign up to.
If there are free trial periods, mark the date in your calendar and set an alert for when you have to cancel before you pay for the service.
Check on all subscriptions you have open once a month and see what you’re using and what would be worth cancelling.
Getting Stung By The Tax Man
The excitement of graduating from university and starting on your career path can quickly turn sour if you haven’t prepared yourself for what your payslip will look like and how much tax you’ll pay.
If you don’t understand the basic tax system you can begin to think about how you are going to spend your first pay packet in full.
But, what you’ve been quoted as your pay will have your tax and national insurance taken out of it before it reaches you, and eventually, you’ll also pay back any student loan you’ve taken out.
When you first start a new job, you’ll likely be put on the emergency tax code, and this will mean you are paying too much tax and will be owed a tax rebate.
The emergency tax code is used by HMRC if you are starting a new job or have been self-employed for a while and are moving back into full-time employment.
After your first payslip, you’ll have a clear idea of how much tax you’re paying each month and what you can budget for with the remainder of your wage.
As far as your student loan goes, you only start to pay this off once you are earning above a certain amount (depending on when you started university), this will also come off your wage automatically if you are employed by someone else.
We hope you found our top tips useful! Being sensible with your money is so important, and it makes a big impact on your wellbeing too. If you’re wondering what wellbeing apps are out there to download, check out our latest blog for more information.