Employment rates and average salaries continue to be higher for graduates. If you graduated recently and are just starting out on the career ladder, here are some steps you can take to help secure your financial future.
Step 1 – Review your student loans
In April 2018, threshold for loan repayment in England and Wales rose to £25,000. So, graduates who took out loans after 2012 can now earn more before making repayments.
When you know what your monthly salary will be, work out your monthly student loan repayments and budget accordingly.
Currently, you will pay 9% of your salary over earnings of £25,000.
For example, a graduate earning £30,000 will repay 9% of £5,000 or £37.50 a month
Visit www.gov.uk for more information about student loan repayment
Step 2 – Create a spending plan
Be pro active about managing your money and set up a budget. Budgeting is an organisational tool that is designed to help stop the build-up of debt (not to stop you having fun!). Plan social events with friends and treat yourself – but live within your means.
Create a monthly spending plan based on the amount you have left after outgoings. Income Tax, National Insurance, pension contributions and student loan repayments will be taken automatically.
Check your bank balance regularly to monitor spending and avoid going overdrawn.
Step 3 – Avoid debt
Get into good habits early on and avoid debt by sticking to your spending plan. Expensive clothes, meals and nights out soon add up and you may find that your income can’t cover everything. This is when it is tempting to rely on credit cards and short-term loans. Be careful – in 2017, nearly half of the UK was in debt with many people suffering mental health issues as a result.
Using credit cards can help you to build a good credit rating, but try not to rely on them. Be sure to pay your balance on time and in full to avoid charges.
Step 4 – Protect your income
Would you be able to pay your rent, mortgage or car loan if you were unable to work? Income Protection (IP) is a form of insurance that can protect a percentage of your income (50%-80%) if you are unable to work due to illness or injury.
If you have just joined a company and are on a probationary period, you may not be entitled to sick pay. Also, Statutory Sick Pay (from the government) may not be enough to cover monthly outgoings.
When you are younger, premiums tend be cheaper as your health is likely to be good. Plan to protect your income early on for peace of mind. You can then adapt your policy to suit your changing needs and circumstances. For example, you may decide to increase your premium when you buy a house or start a family.
Step 5 – Save for the future
Those who start saving at an earlier age will find it easier to reach their financial goals than those who delay saving.
Create a financial safety net by building up an easy access savings fund. Putting a small amount away as soon as you get paid (try 10% of your monthly salary) will provide a financial safety net in times of emergency or an unusually expensive month.
It is also wise to invest in a long-term savings plan that could help you to fund a future event, such as a wedding, or even to subsidise your pension. Consider taking out an ISA (Individual Savings Plan) or a tax-exempt savings plan.