Now that you’ve graduated, you are probably looking forward to having a job and money coming in. While you should enjoy this time in your life, don’t delay sorting out your personal finances after university.
It is super important to get these things done now, to save frustration and regret later down the line.
1. Get a Graduate Bank Account
While at university, you will likely have had a student bank account. These bank accounts generally provide interest free overdrafts to support you with the financial side of studying for a degree.
However an overdraft is (unfortunately) not free money and the bank will start asking you to pay this money back after you graduate. This can be tricky if you don’t immediately have a job lined up or have other immediate financial responsibilities.
This is where a graduate bank account comes in really handy. These accounts help to bridge the gap between student and graduate life by providing you more time to pay off your overdraft before you are charged interest.
Many will start with a similar overdraft to your student account and slowly taper down to £0 over the next 2 – 3 years (specific terms will differ depending on which bank you are with).
Your student bank account may automatically flick over into a graduate account after you finish your course, however it is worth checking the details with your bank as this is not always the case. Also, remember you do not have to stick with the bank you are currently with. It might be that a different bank has a better deal you want to take advantage of.
Even if you are not worried about paying back an overdraft, graduate accounts can come with other perks that it is worth researching when sorting out your finances after university.
To compare deals, money saving expert and save the student are good, trustworthy sources of information.
2. Open a savings account
As soon as you start earning income, you should start saving money. Even if it is only a small amount each month, it is vital to start getting into responsible money habits. The first step is to open a savings account as part of sorting out your personal finances after university.
The best way to save money is to open a specific account and regularly transfer your money in. This helps keep your money safe from impulse purchases and allows you to earn interest from your savings.
There are many different types of savings accounts available and you are going to need to spend a bit of time researching which option is right for you.
To compare savings accounts, you can visit compare the market, which or other price comparison websites. Read on below for an overview of each option.
Easy Access Savings Account
These are flexible accounts that allow you to save as much as you like, as often as you like. You can also withdraw your savings at any time without any penalties, making it an ideal account for emergency savings. However, these accounts generally have a lower interest rate than other accounts.
Regular Savings Account
Regular savings accounts require you to save a certain amount each month. There is generally an upper and lower limit to the amount you pay in (e.g. between £25 and £500 a month. You have to commit to these payments for a fixed amount of time (usually 1 – 2 years) and cannot access your money until the end of the period.
These accounts are less flexible and not suitable for emergency savings. However they generally get a higher interest rate than other types of savings account and support regular savings towards a particular goal.
Notice Savings Accounts
Notice savings accounts require you to give notice to the bank before making a withdrawal of money. This could typically be around 30 – 120 days. These accounts allow you to deposit more money and generally have a higher interest rate than easy access savings accounts.
However, they are also inflexible and not suitable for emergency savings.
Cash ISAs
Cash ISAs (Individual savings accounts) are similar to other savings accounts however any interest you earn is tax free. Everyone has an ISA allowance (up to £20,000 in 2022/21) – this means you cannot deposit more than this into your ISA each year.
Cash ISAs vary between providers and may have rules similar to an easy access bank account or a notice savings account.
A special type of ISA is the Lifetime ISA. This is a government backed ISA that can be used to purchase your first house or save for your retirement. You can put in up to £4000 a year and the government will add a 25% bonus to your savings.
My recommendation for graduates
I recommend opening an easy access savings account straight away and starting to build an emergency fund. (Providing you have paid off any high interest loans first). Once you have a comfortable amount of money built up (e.g. 3 months of expenses), I would consider opening a second savings account for your bigger goals. For example a lifetime ISA is a good option if you are saving for a house.
3. Get a credit card
I had a credit card as a student. I was given it when I signed up for my student bank account. They told me it would be useful in case of emergencies, however I did not use it once.
I didn’t understand why, if I couldn’t afford something now, I would be able to afford it by the time my credit card bill came. I was scared by the huge interest rate and didn’t want to mess around getting into debt.
However, when I left university, I suddenly found I had lots of bills to pay but my salary from my new job would not come in until the end of the month. So, while sorting out my personal finances after university, I got a credit card to help bridge the gap. I could put a lot of my usual purchases and bills onto my credit card and then pay them off at the end of month once my salary came in.
It is easy to be scared of credit cards given the amount of people who get into bad situations using them. (A quick search on youtube for ‘credit card debt’ brings up countless videos about how different individuals got into and out of debt!).
However, if you are sensible with your spending, a credit card can bring a lot of benefits. As well as bridging the gap, a credit card is useful for building your credit score, earning cashback/benefits, and providing protection when buying products online.
How to pick the right card
When considering which credit card is right for you, consider how you plan to use it and what different rewards are available. Some credit cards give you cashback, points towards flights and holidays or store discounts. Other credit cards might offer introductory 0 interest periods or transfer money to help sort out debt.
Pay attention to the terms and conditions including the interest rate and minimum payment. As long as you pay off your balance each month, you will not be charged interest, however if you pay less than this, you should be aware how much it is going to cost you.
You can compare credit cards by looking on price comparisons websites e.g. Uswitch
How to qualify for a credit card
Finally to qualify for a credit card, banks will look at your credit score. If you have a bad credit score (e.g. because of debt) you might not qualify for some cards. However, using a credit card and paying off the amount each month in full is a great way to build your score.
Even if you do not have a bad credit score, as a university graduate, it is unlikely you have a good score yet. Therefore it is beneficial for you to use a credit card to build your score as well. For more information on credit score see this article from save the student.
4. Pay into a pension
A pension is a long term saving plan to help you save money for retirement. After graduating university, your retirement seems like a long way away. In fact the retirement age is so high now that it almost doesn’t seem like something you need to bother with.
However, when sorting your personal finances after university, it is really important to think long term about your money. The earlier you start saving, the bigger your pension pot will be. When your money compounds over time, the money you put away now will be worth a lot money when you come to retirement.
It can be hard to think past your current money needs, however many of those who retire regret not paying into their pension earlier. For example, this article from employee benefit, found that 12% of people in their study regretted not being more involved with their pension savings.
In addition, if you have a workplace pension, when you pay in, your employee will pay in as well giving you additional money saved that didn’t come out of your paycheck.
When you start a new job, you will usually be enrolled in your company’s workplace pension scheme and may be asked how much you would like to contribute each month. If you can, I advise you to always add in the maximum amount.
5. Create a Budget
Finally, as part of sorting out your finances after university, you should sit down and create a budget for how much you are going to save and spend each month. It is normal for your spending to fluctuate each month, however it is helpful to have a rough guide to follow so you don’t spend over your means.
There are various apps and spreadsheets available to create a budget which you might want to look into. However you don’t need anything fancy to create a budget! I use a google spreadsheet but you could also use pen, paper and a calculator to keep track.
Evaluate your current spending
To create a budget, the first thing you need to think about is what you are currently spending money on.
Start with fixed costs like your rent, bills and subscriptions. Then consider your variable costs such as groceries, eating/drinking out, entertainment, shopping and travel. For each, how much are you roughly spending.
Then consider any bigger luxuries such as technology, holidays and cars. How often do you need to spend money on these things and how much does that roughly equate to per month?
Review where you might want to cut back
Once you have an idea for what you are spending at the moment, you can work out how you would ideally like to be spending your money. Are there key areas you think you are spending too much and need to cut back on? Are you setting money aside for your savings each money and could you save any more by reducing costs elsewhere.
Track your spending
It is only helpful to have a budget if you are going to track your spending against the budget. I use the Yolt app to track my spending. This app links with my bank account and automatically categories spending so all I need to do is open the app and can evaluate if I’m about to overspend.
Budgeting can seem difficult and overwhelming, however being in control of your money is a huge benefit. I have found the mamafurfur youtube channel very helpful in budgeting advice (see her intro to budgeting here). She even has a ready made budgeting spreadsheet that you may want to use.
It is important not to delay sorting your personal finances after university. It’s very easy to let your money goals slip as life gets in the way and find yourself in the same position three years later, still with no financial security.
Get financial savvy now, while you have time, and it will really help you get ahead in your future career.
After acing these five steps you may want to start thinking about your next financial steps such as saving to buy a house and getting a mortgage and getting started with investing. While it might be a while until you are financially ready for these next steps, getting ahead with your research will shape your future decisions for the better.
The COVID-19 pandemic had a big effect on the nations personal finances. Want to know how it affected mine as a graduate living in London? Read my post here.
