Budget

Good finances are all about the decisions you make. And if you think a budget is boring, think of it this way. A budget is nothing other than a way to do what you really want to do, and avoid spending money on things you don’t really care about. Want to have beers every lunch time with artsy-looking fashionistas? Sweet, have fun. But it might come at the expense of a trip to South East Asia over summer. Avoid dropping into debt by ensuring you’ve covered all your necessities; rent, groceries, utilities, phone and net bills. Try and save some money and contribute to super, it’s a smart move. The rest is yours to do with what you will, it’s all about the choice.

Credit Card Poison

The whole world was opening up, and for some reason I thought I should have the budget to go with it. 5 years later and I’m still trying to rid myself of the pernicious credit card debt that can come from that kind of thinking. If you can’t pay it off at the end of the month, get rid of it until you can. Better yet, don’t have one except for actual emergencies. This is one of the few times of your life you actually have a disposable income, enjoy it.

Don’t Panic

Things get rough, don’t just ride off the back of your credit card cash advance facility. It’s embarrassing to ask for help, to admit to someone else you can’t handle it all, but it’s a much better alternative to getting mired in debt. Everyone has been there, so don’t worry about what people think. Talk to your uni about student loans, they usually have a facility for a loan of about $500 if you can prove the need. It might be enough to sort yourself out. It’s also worth talking to your bank, better those interest rates than those of a credit card.

Reminders

You’ve got a lot of deadlines as a student, so take the work out of remembering them. Set up a calender on your phone with all your assignment due dates and a reminder when you need to pay bills. Set up automatic deductions for as many of the bills as possible, and make sure you have the money in your account to avoid overdrawing fees.

Ask

Ask for student discounts on everything. It’s never going to hurt, and you’ll be surprised where you might end up saving money. The same goes with Centrelink- the website it a minefield, so why not set up a meeting at your local office and talk to someone about your situation? There are loads of options out there, so it’s worthwhile checking if any of them might help you out.

Did you know that if you voluntarily pay off your entire debt directly with the ATO, you will get a discount of 10%? This means that if you were to owe $7,000 in outstanding HECS/HELP debt – if you were to agree to pay this in full, you would get a 10% discount – a saving of $700, revising your total you owe to only $6,300.

This discount may not sound like a lot, though we at Savings Guide will take whatever discounts the ATO wish to hand out as great news. It isn’t often you hear of hands outs like this. This is the equivalent of the ATO giving you $700 in cash.

The 10% discount ends as of 1st January 2012

That’s right. This 10% discount has been reduced to 5% as a result of recent Government legislation changes. On 1st January 2012, you would only get a 5% saving if you paid in full. This means a saving of $350 instead of $700 in the scenario above.

Are you a future thinker?

The majority of people will ignore this hand out. This is understandable if your debt is quite large as quite frankly it would be very hard to cough up that amount of money by December 2011.
In saying that, if your debt is quite small and on its last legs – you would be a very wise and future thinking saver to take advantage of the 10% offer while it was still available.

Benefits of paying off your HECS/HELP debt

Each pay cheque you receive you pay a little towards your HECs/HELP debt. Paying it off means more money in your pocket each pay day and the ability to use that money wisely for other more exciting things.

Understand Your HECS

It might not be something you have to actually pay off for a long time, but make sure you at least understand how much you owe, at what point you’ll start paying it off and how it will affect the other debts and repayments you probably have coming your way.

Save Up: Short Term

I finished university thinking that lots of people wanted to hire recently graduated communication students, and was quickly disabused of that fact. In my ignorance, I hadn’t lined a job up and ended up paying my rent with my credit card for far too long- a fact that means I’m still paying off those couple of months. Either line a job up first, or have a bit of an emergency fund to soften the post-uni blow.

Save Up: Long Term

Even if you’ve got the dream job, sometimes things go awry. Being prepared for that day financially is a huge boon, and will avoid you getting into extra debt or being strapped for cash. And if you don’t end up needing it? Thank your stars for your blessed existence and put it towards your retirement or a house deposit.

Do You Need A Car?

I want a car- I know that much. But whether I can truly afford it at this point of my career is another question. Understanding the difference between need and want is apparently a crucial life skill, and one I’m still honing. It’s an important consideration when moving- will you need a car to survive in your new setting or could you move somewhere with great public transport and save money that way?

Share

The first year in your career is going to be a tough one. You don’t get paid huge amounts, you’re still learning the ropes. So while you want to get out there and be independent, think about living at home or with friends for the time being. It’s much cheaper, will be a great support system as you go through your first year and you can move out to your own place when you’re properly set up and able to afford it.

Budget, Always Budget

Those years of university, I never really needed a budget because I literally didn’t have any money. Lots of people will tell you that you should start saving then, and I’m sure that’s true. I’m also sure there’s a fair amount to be said for a couple of years where you don’t worry so much. Those years are gone, I tell ya. Now, I need a budget. I have long-terms and short-term goals that I need to achieve. I no longer think I can have it all, so I’ve got a good idea of what I want most and how I am going to achieve it. Having a road map (as George W) would say is the first step in getting anywhere.  ]]> http://www.savingsguide.com.au/tips-and-tricks-for-the-recently-graduated/feed/ 0 http://www.savingsguide.com.au/is-university-a-bad-financial-decision/ http://www.savingsguide.com.au/is-university-a-bad-financial-decision/#comments Tue, 15 Feb 2011 20:00:02 +0000 Fran Sidoti http://www.savingsguide.com.au/?p=2585 University is a path to some well-paid jobs. It is often necessary to obtain work in the professional sector. But in the age of expensive living costs, huge HECS (or whatever they’ve changed the name to this month) debt and very long degrees, is it necessarily a smart financial decision?

Degrees Make Money

Research in both the US and here shows that people with university degrees make more money than people without them, on average. Data from the US Census Bureau shows that people with a high school diploma earn $1.2 million over a lifetime, those with a bachelor’s degree earn $2.1 million and those with a master’s earn a cool $2.5 million. So the cold hard facts of earnings spell a picture of some pretty big jumps according to education. But is that the whole story?

Early Debt, Early Expenditure, No Savings

Jack Hough from SmartMoney wrote a fascinating article on the worth of degrees, arguing that under the current system, a university degree will hamper a person financially throughout the rest of their life. The reason? Huge loans to earn the degree in the first place (a bigger problem in the US than in Australia) leading to early debt and a loss of years in which to save for retirement, pay off other debts or invest. Simply put, the slow financial start will have consequences throughout the following decades.

Extended Expense

Compounding this issue is the death of three or four year degrees. Firstly, people who are required to study part-time simply to afford being at university, thereby extending their bachelor’s to five or six years. Secondly, degrees in areas likely to make money- engineering, architecture, law, medicine- are now typically five years. Even in education, unlikely to result in huge earnings, a master’s degree is increasingly typical, making it a five year degree also. It’s a longer period out of the full-time workforce, and greater debts to pay off once you get in there.

User Pays Systems

Higher education became commercial by necessity. The extent to which university has become business drives me wild, but I understand that free education wasn’t necessarily sustainable policy.
That said, the time has come to look frankly at whether the quality of the education is comparable with the amount you are paying for it, especially considering it is having other adverse effects on your finances. University is now a product. Education is Australia’s fourth largest export. You are a customer, and deserve the quality of service that you would in any other setting. You expect your food to be decent when you pay for it at a restaurant, and there’s no difference when it comes to university. If your class sizes are too big, the contact hours too few, or you’re expected to work with poor resources, you, as a customer, have a right to kick up one hell of a stink.

Cost Versus Benefit

While acknowledging all this (and I truly believe students should be demanding a far higher quality of service for what they’re paying), university is not solely about cost. It’s also about benefit. If you are solely interested in money and setting up your finances early, think about doing an apprenticeship. Great money once you graduate, and guaranteed work. A financial win.

But if you want to learn more or work in the professional sector, then the numbers are not the entire picture. The benefits, whether fiscal or more intangible, outweigh the cost.

It is hard to think about the future when it feels like you have a lot of pressing concerns in the now. However, there are some bad habits that can be avoided which will help you retire with money in your pocket and time to spend it.

Credit cards

Boo, hiss. Okay, so it’s a pet hate. And what do credit cards have to do with saving for retirement? Well (and Ms Appleby will back me up on this), credit cards and saving don’t exactly go hand in hand. One year’s madness can result in a couple of years paying off the card, and not putting the money into savings.

Appleby also talks about the positive effect a good credit rating can have on your long-term savings. A good credit rating apparently involves paying your bills on time (which saves you money anyway), never exceeding your credit card limit, and having a debt to income ratio of 16% or less. While some commentators seem to feel that credit ratings have become increasingly less important, a good credit rating will still make getting a loan or a mortgage easier.

Appleby suggests that you can negotiate on interest rates, and save a lot of money over the years, all of which can go straight into a retirement savings account.

Consider the olds

Ah, this one cuts to the quick. When you’ve graduated, you have a couple of choices. You can continue to rent, you can look to buy (I’m told, I’ve never met a recent graduate in this position) or you can move back in with the folks. I went with the latter option. There were a couple of reasons, but mostly I never wanted to be as financially insecure as I was throughout university.

Moving back in with my parents has allowed me to save for a career investment and start thinking about having a savings account that will allow me to buy a house. It worked for me, but should you be someone who values their independence too highly…

To rent or to buy, that is the question

No recent graduate, in Australia at least, could really afford to buy a house straight up. Unless I’m hanging with the wrong crowd entirely. But once you’ve got yourself a full-time wage, earning more than 30 cents an hour at the local café, you start to question what you are working towards? Should you be paying someone else a couple of hundred dollars a week, as opposed to putting that money towards a mortgage?

Volunteer

Super contributions are a pain, but I plan to be putting a lot of purple rinses through my hair in my old age, and I’m going to need to fund it somehow. Increase your own super contributions, and you’ll never see the money anyway. Think about setting up your own high-interest retirement saving fund. Being young and immortal is great, but I suspect a mane of purple hair might be pretty sweet as well.

What retirement advice do you have for young people?

I can imagine that you’re so desperate to get your child through the year safely and sane, you’re unlikely to raise issues that cause an upset. I know I was so highly strung for that year; the other residents of the house tiptoed around and ducked for cover when I walked past.

So, how to raise the issue of who is paying for formals and schoolies? After all, they are major expenses. Schoolies will undoubtedly cost a couple of thousand, and the formals can cost anywhere between $500 through a thousand unless you have a particularly mature teen who feels no need to go over the top.

The best way to approach the issue is talk it out with your teen. Of course, you’ll probably be happy to lend them a helping hand but footing the entire bill may be financially out of the question. Here are some tips on negotiating the topic.

Get independent

Teens are very willing to be independent when it comes to letting you know where they’re going, what time they will be home and who they will be going with. Mention money, and all of a sudden, the independent streak vanishes into thin air. Don’t let it all be one-sided- encourage them to make financial decisions independently. Don’t bail them out every time they need new credit for their mobile phone (six days after you last shelled out money for it). Explain to them that with independence comes financial responsibility, and while you’re happy to be there in emergencies, you’re not a bank with no limits.

Get income

Some people tend to shelter their kids in the final year of school, and give them an allowance that takes away any need to get a job so they are less stressed or have more time to dedicate to school. I always felt that my part-time job was a great change from the relentless rigour of school and homework; it allowed me some independence and the means to do what I wanted. It also helps when you want to contribute to schoolies and the formal.

Budget

Sit down with your teen and discuss how much money you are willing to provide. Work out what they can achieve with that money, and how much they will need to contribute to get everything they need for the formal and schoolies. It will be an important lesson before they get sent out to the world- if you want the extra nice shoes, you are the one who has to work to get them. Help them write out a budget, estimating how much they will have to save every week to have enough to go on schoolies and the formal.

Research

Help your teen to research the best options for schoolies- accommodation, flights, events. This is probably the first time they’ve organised something like this, so take them them through it. The same goes for the formal- help them call around to get quotes on the double decker bus, the rent Chevy or tuk-tuk.

How much did you ask your teen to contribute for the formal and schoolies?

Not so much. It’s fun, spending everything you earn. Believe me, I know all about it. But it’s going to leave you financially hampered for the rest of your life, if you dispose of all your disposable income in your twenties. Now is the make or break time. You can set the rest of your life up nicely, or you can make everything a little bit harder. Here’s how to go with the former.

So much money

Yes, compared to your Maccas paycheck, your annual salary is huge. But take out taxes. Take out super. Divide the number by 26. Now you’re looking at what your take-home is, and I’m willing to bet it ain’t as plum as that enormous yearly salary looks.

Solution: Wait to see what your paycheck really looks like after the first month. Then draw up a realistic budget, that allows you to have fun (after all, this is your twenties) but also allows you to live a cash life and have some savings.

Purchase a new work wardrobe (and a new wardrobe)

You may feel as if you need an entirely new wardrobe, but be smart about what you buy. A couple of well-designed basics, that you can mix and match, will mean you have a smart looking wardrobe that doesn’t cost a bomb. Think about scarves and handbags (not tones, just a couple) to smarten and mix it up. While you’re at it, don’t buy an entire IKEA to stock up your new pad.

Solution: Buy good basics and don’t buy everything you see all at once. Start minimalist on your new apartment and add to it gradually as you work out what the essentials are. Think second-hand and discount as well.

Too young, too free

Just because you’re in your twenties, doesn’t mean that you won’t ever have an emergency or want to retire. Sure you’ve just started you’re first job, but the time to start preparing for leaving the workforce is now.

Solution: Set yourself up now. Contribute extra to your super, and set aside 6 months of expenses in an emergency fund. If you set yourself up properly when you’re in your twenties, things will be a whole lot easier in the long run.

Live like we do

Your friends are lawyers, accountants and fashion designers, and they live like it. You, on the other hand, are a struggling journo or working for community. Don’t march them expense for expense.

Solution: Live according to your salary. They’re your friends, they’ll be happy to make concessions. Don’t feel inferior because you can’t afford designer goods. It’s all trimming anyway.

Leave debt for later

The problem with this is obvious, I guess.

Solution: You’re never going to feel like you have enough money to pay off debt. Do it gradually, and do it consistently.

Use part of all that lovely money you’re getting to get you on your feet, and stay debt-free.

What are your tips for new earners, or experiences as a new earner?

So how much, ideally, should I have had when I left home? And how much should you have if you are intending to live independently? Here are some pointers.

Financial fat

Sometimes leaving home means moving down the road. You can stay at the same job, and sneak home for the occasional meal. More often, however, leaving home is occasioned by a move for university or a new job. This means it might take a couple of months to get on your feet, and you need to budget for this. Especially if you don’t have a job lined up, you’re going to need a couple of months’ income to sustain you.

How much?

Say your hourly wage is $18 after tax and you work 20 hours a week (this is a guess-timate of what the average uni student would be earning). Say it takes you a month to find a job (a worse case scenario obviously, but prepare for the worst. This means you should have roughly $1500 to tide you over.

Bond

If you are about to start renting, you don’t just need the money week to week. It’s easy to forget the upfront costs, and bonds can be a pain in the neck if they’re not accounted for. Of course, you do get it back (should you be a sensible tenant and not use the floor as one great big ashtray) but it can be a couple of years.

How much?

Generally a bond is about $300- 700. It depends how much your rent is, and how many flatmates you have to divide the costs with.

Fitting out

Once you’ve got a place, you then need to think about what you are going to put into it. People around you are always generous, but they can’t be expected to supply everything. You’ll probably need a bed, mattress, some kitchen appliances and maybe a couch. Go second hand, and you’ll save money.

How much?

Probably a couple of hundred dollars.

Textbooks/ Work clothes

If you are starting a new job or university, there may be some initial costs associated with that also. New work clothes aren’t an absolute necessity, but if this is your first serious job, then you may need to upgrade your wardrobe. Ditto with the textbooks. If you are very skint, then just use the ones in the library. Don’t necessarily believe them when they tell you its imperative that you own ‘The Deconstruction and End of Gender’ or something similar, which you leaf through once in Week 12 when you’re writing the final essay.

How much?

New work clothes can cost about $50 -100, and new textbooks can range from $50 to a couple of hundred.
All in all, to prepare for moving out, you’ll probably need to set aside about $3000 to cover bond, moving, furniture and to ensure you don’t get stuck should finding work prove difficult. Even then, you’ll need work and a budget quite quickly. You don’t necessarily need that much, but you’ll start your new independent life on the right note if you do.

How much did you save before you moved out?

Really it’s no laughing matter and it’s very unfortunate that those who study and live out of home can’t even afford to eat properly during exam time.

To make life easier, if you’re a student you should take advantage of the special discounts, payments and lines of credit that are available to you during your studies.

Youth allowance and government money

Any student knows that Centrelink’s Youth Allowance system is difficult to access, overly technical and unfairly impacts on students who need to work long hours. The most important thing when dealing with Centrelink is to make sure you’re getting every cent you’re entitled to:

• Research exactly what you’re entitled to
• Apply for payments as soon as you become eligible
• Be sure to apply for Rent Assistance as soon as you move out of the parental home
• Work out how many hours you can work each week without losing all of your Youth Allowance – otherwise you’re essentially working for free

The Rudd government has recently made changes to Youth Allowance which should mean that more students are eligible and income support is increased significantly. The changes take effect in 2010 and you can read up on them here.

Student loans

All public universities have a student loan system which only enrolled students can take advantage of. The amount you are able to borrow will depend on the university you attend. Like HECS, student loans from universities are interest free and can be paid back in instalments.

Most people will never have another opportunity to take out an interest free loan. Generally, you will receive the loaned money very quickly after you submit your application and lots of universities can loan smaller amounts within a few hours in case of emergency. Depending on the university, student loans range from $500 to more than $5000.

Most Youth Allowance recipients can also take out a $500 advance payment from Centrelink on interest free terms.

Scholarships

Some scholarships are offered by individual universities and others are offered by the government of the state you live in. There are several that you will be able to apply for during you degree. Scholarships will usually consider academic merit in conjunction with financial hardship so you’re more likely to get approved for one if you live out of home and have good grades.

Special discounts for students via the Student Union

The advent of voluntary student unionism has severely affected the power of university student organisations to represent and serve their student body. Whilst joining the student union was expensive when compulsory, the benefits of having a powerful student union far outweighed the burden of the individual yearly payment.

The reality is you should join your student union even though it seems expensive. Being a student union member entitles you to an extremely wide range of discounts both on campus and off. It only takes a few weeks before your membership will pay for itself and you’ll continue saving all year.

Be sure to become a member of your university bookshop or co-op since membership entitles you to significant discounts on textbooks. Also, most universities have food co-ops which you can join that entitle you to discount fruit and veggies.

I’ve written about the unique world of Gen Y finances before. People of the minute, we are a generation unsuited to thinking of the long-term and we are definitely unused to the idea of saving for the long-term.

Or at least half of us are. According to a survey conducted by the American Savings Education Council, 51% of American youth are saving for a long-term goal. I would assume the number is fairly similar in Australia.

There is no need to add yet another article to the pile of harping missives trying to frighten ‘young people these days’, talking about superannuation and recessions and financial security. Instead, let’s look at what you can do today so when tomorrow arrives (and yes, I know we’re all immortal and there is no such thing as tomorrow and we’ll never get old. Noted), when tomorrow arrives, you will be financially prepared for it.

Overestimate your spending

MSN Money suggests this is a great place to start. Taking into account a youthful proclivity to forgetting the true cost of living, the article suggests that you set your expenses high and you will end up with cash left over, as opposed to having to use your credit card to cover the unexpected costs incurred month to month.

In your financial journal, have two columns. One for expected spending, one for actual costs. You’re aiming to have the actual costs smaller than the amount you budgeted for. That way you’ve got a bit of emergency financial fat, and an amount you can add into your savings account on a regular basis.

Pay yourself first

Out of sight, out of mind. Gen Y is constantly confronted with a new distraction and thinking of the next thing, so why not use that mindset to your financial benefit? Don’t just save whatever is leftover at the end of every week, as recommended above, but also put aside some savings straight up. As soon as your income comes in, set up a direct debit into a savings account.

Don’t do it manually as, while you might be disciplined today, it may desert you tomorrow. Do it first, and you won’t even miss the money.

Spend cash

I know from deeply bitter experience how dangerous a mix newfound independence, youth and a credit card can be. You’ll be saving yourself a whole lot of pain if you learn to live a life paid for by cash as opposed to credit now.

Don’t get a credit card or, if you have one, pay it off and cut it up. I know some people can cope with credit cards but, in my experience, few of those people are in their twenties. Life will end up a whole lot easier in the long run if you learn the importance of cash.

Get your slip on

The government has set up a number of systems to make paying tax and super relatively painless. All you have to do is go with the flow. Check that your employer is signed up to PAYG and that super is additional to your wage. Keep an eye on your payslips, and you should be set.

What financial tips do have for Gen Y?