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Last Updated: Thursday, 19 August, 2004, 07:37 GMT 08:37 UK
Survival tips: Student finance
Colin Jackson, Anne-Marie Blake and Chas Roy-Chowdury

Going to university is fast becoming the second biggest financial commitment after a mortgage.

How can students and parents best prepare their personal finances for university?

BBC News Online consulted three financial experts for their top survival tips.

Anne-Marie Blake, head of student banking, Natwest

Take charge from the start

It's a fact of modern life that most students will leave university with debt.

But with a bit of careful money management, student debt need not be a millstone around your neck.

As term starts, look at how much cash you have available either through student loans, interest free overdrafts or from your parents.

Make a weekly budget and stick to it. Withdraw cash once a week and resist the temptation to visit the cash point to take out 10 here and 10 there.

It may seem like a pain but don't run up a massive debt in the first couple of months.

Going out every night in the first term may make you popular, but could mean a serious lack of social life later in the year.

Before you start university, do a bit of research into how much things cost in the city of your chosen university.

If you are from a small village in Wales and are going to university in London, you will be in for a big shock if you don't consider things like the cost of rent, transport and socialising in a big city.

Ask other students how much they spend a month on things like bills and put that amount away in an account each month so that you are not taken by surprise when the quarterly electricity bill lands on the doormat.

Savvy

Even the most financially savvy students may find themselves in a situation where they need to dip into the red occasionally.

Students: top tips
Stay in university accommodation for as long as possible, it is cheaper
Shop for food with friends as bulk buying makes sense
Use your NUS card to claim discounts and check with the student union for one-off deal
Make a note of all financial transaction
Withdraw cash only once a week
Source: Natwest

The student loans that are available from the government are also a low cost way of financing life at university and you don't have to be repaid them until you start working after graduation.

In recent weeks there have reported delays in the payment of student loans, so be proactive and chase up your application.

It's not the end of the world if you find that you have overspent, but the most important thing is not to bury your head in the sand.

Although a 1,000 overdraft will seem a lot for someone managing their finances for the first time, it is manageable. With a little support and guidance from your bank or university, you will be able to get through it.

Chas Roy-Chowdury, head of taxation, Association of Certified Chartered Accountants

Tread carefully with the taxman

Given that students are leaving university with ever increasing debts, it is no surprise that many current and prospective students will be looking for part-time and summer jobs to supplement their incomes.

As every penny counts, you want to make sure the pennies are in your pocket and not going unnecessarily to the taxman.

The tax tips below should help you hold onto your hard earned cash:

  • If you have worked before or claimed Jobseekers' Allowance, you should provide your new employer with a P45 form immediately; otherwise you will be taxed at 22% on all your income with no deduction given for your personal allowance. If you do not have a P45, ask your new employer for a P46;
  • You can currently earn up to 4,745 a year without being taxed. Beyond this amount, you will be taxed at 10% up to 6,765, and at 22% between 6,765 and 36,145. If you work during holidays and do not expect to earn more than 4,745, your employer should complete form P38(S), which allows your wages to be paid gross;
  • If you have earned less than the annual personal allowance of 4,745, you can reclaim any tax which you have paid during the year. Contact the Inland Revenue for a repayment claim form;
  • If your earnings exceed 91 per week, you must pay Class 1 National Insurance, which stands at 11% of earnings and at 1% on earnings above 610 per week;
  • If your total taxable annual income exceeds 4,745, you will have to pay tax on Jobseekers' Allowance and on interest from most savings accounts;

Colin Jackson, director, Baronworth Investment Services

Parents plan ahead

University can be an extremely expensive time for parents. The withdrawal of much state support for students means that much of the onus for funding has fallen back on the parents.

The golden rule is to start saving as early as possible.

The safest way to save is by putting the money into a building society.

Although interest rates have been on the increase recently, they are still not that attractive for long term saving.

However, this has to be balanced against the security of the investment. At least with a building society account you will not lose your money.

If there are, say, five years to go before university starts, then consider a monthly savings plan that invests in the stock market through a unit trust.

A unit trust invests in a basket of shares and therefore spreads investment risk.

By saving monthly you can take advantage of 'pound cost averaging' - buying more when the price is low and less when they are high.

But if your child is off to university soon, putting money into the stock market is not sensible as there is no time to ride out the peaks and troughs of share price moves.

Consider putting the investment into an Individual Savings Account (ISA) as this means growth will be tax free.

There is no guarantee that you will not lose money when it is time to cash in, but over a period of at least 5 years there is a good possibility that you will make money.

Accommodation

One of the major expenses of university life is accommodation.

If you have the money it may be worthwhile buying a property close to the university that can be converted into student accommodation.

Hopefully, the revenue from the students will be sufficient to cover the mortgage.

And when your child leaves university you may be able to sell at a profit.

But in the current climate of higher interest rates, remortgaging in order to become a student landlord may not be advisable.

What is more, property price rises in many UK university towns have outstripped the national average.

Any investment in property has to be right for you and should not be made solely on the grounds that it provides a free roof over your child's head.

All in all, if you don't have sufficient savings and are not happy with the idea of investing in student property then you may have to let your child take on the burden of paying their way through university.

The good news is that a student loan is just about the cheapest loan available anywhere.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.


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