It can be a confusing and daunting experience leaving home for the first time. One of the biggest challenges will be keeping on top of money issues.
Let’s start right at the beginning: budgeting. To some teenagers this might sound pretty boring, but it’s an absolute essential.
It’s important to realize that debt plays a big role in the budget
Most of the cash a student has to spend is going to be borrowed money. That’s an inevitable feature of modern university life. But students must still realise it’ll need paying back at some stage. That means squandering it willy-nilly is not on the menu.
‘ Debt is a part of the way you fund university,’ says Steve Rees, a debt consultant at Vincent Bond. ‘It’s about getting the right sort of debt – student loans and overdrafts – and then creating a budget to keep control.
‘If you can help your son or daughter work out in the back of their mind what they have to spend each week after bills, it’s a great place to start.’
How to make a student budget
Assuming that your fees are already paid, here’s a plan of action:
- Work out what’s available to spend (loans, grants, income from job etc.)
- Work out likely costs (prioritise necessities)
- Put a weekly cap on certain types of spending (nights out, takeaways etc.)
- Keep tabs as you go (use bank statements as a tool to help)
Work out ‘income’
A student’s income should include any money from student loans and grants, earnings or savings from a part-time job or holiday job, and any money given as gifts.
Don’t include the interest-free overdraft (see section on student banking). This should be no more than a cushion. Your son or daughter will need to fall back on it at some stage and it’s best left that way.
Possible yearly income:
Earnings: £3,000 (from summer and part-time term work)
+ Money from family: £200
Divide this into weekly chunks. That makes it more manageable – particularly because rent is typically advertised or listed on a per week basis on most university campuses and by many landlords, despite normally being paid monthly or termly.
Using the example above, that leaves £300-ish a week over a 30 week term. Next, work out a weekly spend on absolute essentials and see where it leaves you.
*Not all students get a grant and amounts vary.
Work out spending
For a teenager heading off for his or her first year, working out the costs is a little tricky. For that reason, we’ve tried to come up with a very basic guide to spending to give you a (very) rough idea. Adjust the figures and experiment for yourself using our Budget calculator.
Weekly spend on essentials:
Rent: If living in halls, check the university prospectus for details because bills are often included. Rent varies for private student accommodation, and typically costs between £60 and £100 a week .
Bills (if in private rented): £15 is a very rough estimate
After these essentials, spending varies greatly. It just depends on the individual and their location. A comprehensive survey by the National Union of Students does give a good idea of typical student habits, though. Here are the results:
Average student spend on discretionary items:
Going out: £17.99
Alcoholic drinks: £17.04
Non-alcoholic drinks: £6.09
Other general: £11.92
Together with the ‘essential’ items, then, we’re talking about £245. That gives a little leeway to the £300. But don’t forget other term-time expenses, such as books and stationery.
According to the NUS survey, a typical student spends (per term this time):
Course books: £75.86
Course-related equipment: £37.88
Printing / Photocopying: £18.95
Other course-related expenditure: £50.02
See these figures as guidelines, no more. The trick is to use it to draw up a practice budget now using our budget calculator for the sums. That should get a student in the right mindset before the voyage into the unknown.
Halls vs. private rented?
A good rule of thumb is to expect to spend around £80 a week for rent on private accommodation, this is the midway point of the £60 to £100 quoted above. It really depends on the location. Halls can sometimes be cheaper than private renting but that’s usually not the case.
A survey by student accommodation website Homesforstudents.co.uk found that the average last year for Russell Group universities – a list of the top institutions from the University of Liverpool to Oxbridge – was £3,807 for university halls against £3,448 for privately rented accommodation over 39 weeks.
It’s not as simple as choosing between the two. Usually, students will spend their first year in halls and then move out into private rented digs after. Sometimes it’s compulsory. This actually makes a great deal of sense – after a year, a student will have found others to share a house with.
John Hill, an independent financial adviser at Milford and Moor in Somerset with two children at university, says he’s found halls a better solution even after the first year.
He says: ‘Stick to halls as long as possible – if available for three years make the best of it. Halls enable tighter cost control from a parent’s point of view and, in some cases, have the advantage of food, or at least some included.’
One in five students now lives at home and commutes to campus. It’s set to become a more attractive option as fees at some universities fees soar to £9,000.
Shared houses and paying bills
A helpful way for students to manage money in a house-share is to set up a kitty so everyone contributes to the essentials – loo roll, tea bags, bread & milk, etc. Suggest this as a way to avoid buying too many of the same item unnecessarily and make sure one person doesn’t end up bearing the brunt of the costs.
When it comes to paying bills for utilities, council tax, TV licence or broadband, at the very least students should ensure that all paperwork and bills are kept safely for reference to save on arguments when it comes to paying up. It is possible to open a joint house account – a basic current account that everyone can pay into and all payments and direct debits can be taken from. It’s worth a student investigating this with their friends.
Now it’s all about keeping tabs on the ‘outs’ budget column. Advise your child to keep all their bank statements (or make regular notes if they don’t get paper versions). Make sure they know how much they can safely spend per week. Of course, the real trick is sticking to it. See our money saving tips section for a few cost-cutting ideas.
It’s also an excellent plan to ask them to set and stick to a weekly cap on certain types of spending – nights out, alcohol and takeaways, for example. It’s worthwhile reminding students that small things like takeaways and nights out all add up at the end of the month and to keep an eye on how much they spend on things like this.
Article By: Dan Hyde