Leaving behind the carefree, reckless days of racking up astronomical tabs in your local student bar to enter a new phase of work, bills and financial responsibility may seem daunting or even unwelcome, but there are steps you can take to ease the transition.
A budget
Not having a personal budget or a money plan is a key reason why people struggle to stop spending money. A budget is made up of two parts — your income and the amount of money you spend on a weekly, monthly or yearly basis.
Darren Nolan, head of financial planning at Ask Paul, the financial advice group set up by Paul Merriman in 2016, says many people have the wrong idea when it comes to having a physical budget down on paper.
“A lot of people misinterpret a budget as something that tells you where you can or can’t spend money in a certain direction,” he says. “What it does is make you aware of where your money is being spent. If you know where it’s going, everything else is easy to manage.”
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A good start on this front, according to Sophie O’Halloran, graduate segment manager with Bank of Ireland, is to review any payslips, current account statements, credit card statements and receipts to understand exactly where your money goes.
O’Halloran also advocates, initially at least, for what she calls the 50:30:20 budgeting rule. “Fifty per cent of what you earn or get should be spent on essential items, things that you really can’t do without,” she says.
“Thirty per cent should be spent on things you want — these are nice to have but you could live without them. The remaining 20 per cent should go towards savings.”
A good way to keep track is by using a simple budgeting sheet to guide you. This way, you can track your money to get a very good snapshot of your spending habits. The Money Advice and Budgeting Service offers these on its website, says spokesman Karl Cronin.
“We have budget sheets there to suit all stages in life,” he says. “So if you’re coming out of college and getting your first full-time job and a good income for the first time, it’s important to budget and see where that income needs to go.”
Accommodation
It’s likely that you are going to be living in shared accommodation at this stage of life. Cronin says one of the “biggest pieces of advice” he always gives is to have “the money chat” with your housemates from the outset.
“That is, how the bills are going to be divided,” he says. “What is going to be shared out, and who is responsible for what. So, from the outset everyone is clear on that. It just saves those awkward conversations or arguments down the line.”
Try to make a budget and plan your week. Know what you are going to be cooking and when you’re going to be cooking. Do your full shop and have your groceries and your food in so you know where you stand week to week.
If you’re in a house-share situation, maybe one or two people could come together and pool funds for the likes of bread and milk and things like that. That way, not everybody has to do a big shop and you can cut down on food waste.
Socialising
When it comes to socialising, Cronin insists you should have all your ducks in a row before heading for the pub again.
“We would always recommend that the essentials are covered first,” he says. “Make sure you have covered your accommodation costs, food shopping, travel costs, utility bills, light and heat, and medical bills. Then see what is left over for socialising.
“It can be very tempting to want to go out seven nights per week, but you’ll soon run into difficulties if you don’t have the funds to do that, and it’ll be at the cost of something else like rent or utility bills.”
Travel
Chances are your commuting patterns are about to change. Cronin says there are long-term savings to be made for a little short-term pain.
“The annual travel tickets are always much better value,” he says. “If you know you’re going to be using public transport every day or for a large part of the week to get to work or whatever, an annual travel ticket will save you money in the long run.
“Very often as well there are employer offer schemes for travel passes, so check with your employer if there is a scheme available.”
For travelling farther afield, O’Halloran has another tip. “Pay in the local currency when abroad,” she says. “When you use your credit or debit card, the retailer may give you the option to pay in your own currency, for example euro, or in the local currency.
“Even though you have to pay a small fee for what’s called a dynamic currency conversion service, it can be still be cheaper to pay in the local currency.”
Saving
It’s not something anybody enjoys doing, but if it’s possible for you, the rewards can be plentiful.
“Even a small amount of spending will gradually add up if it’s part of a regular spending habit,” says O’Halloran. “That’s why tracking how much you spend down to the last cent is essential if you are serious about getting and keeping your finances on track.
“Once you start earning, you can protect yourself from any overspending habits that may develop by setting up a direct debit or standing order to transfer money out of your main account each month to a savings account or deposit account soon after you get paid.”
She also suggests adjusting the amount you stash away each month to allow for unexpected events.
“If you know how much you need to save and you plan to save a specific amount of cash each month, it’s important to be realistic and allow for a one- or two-month break from saving, to account for things you can’t foresee,” she says.
“That might mean saving for longer or saving a higher amount each month just to be sure. If you factor in the unexpected, your savings plan will have a much higher success rate.”
Nolan says it is a good idea to treat your savings as an expense. “If you don’t, that’s when you’ll find yourself dipping in and you won’t achieve your objective,” he says.
“Try to have your savings in a separate account away from your current account. You can also name or label the account something like ‘summer holiday 2023′ and you’ll be much less likely to take money out of it.
“Also, look at your direct debits and ask yourself the difficult questions as to whether they are actually adding value to your life and whether you need them all.”
There are even longer-term considerations when it comes to saving, such as pensions. “It’s a good time to look at pension contributions and to start paying into a pension scheme,” says Cronin.
“Nobody likes to talk about pensions and people tend to put them off until way down the line, but the sooner you start paying into it, the bigger the fund you will have built up when you get close to retirement. Just something small even to start that process.”
Banking
With Ulster Bank and KBC Bank pulling out of the market in the Republic, there are less options for choosing a bank but, as Cronin says, you should still “shop around”.
“See what current accounts are available and what fees are being charged to suit your needs and your lifestyle,” he says.
“We see a lot of people moving towards the Revoluts and the online digital bank accounts now, but then others want to have an account with a bank where they can physically go into a branch and transact.”
Debt
The question of building up debt and the wisdom of it is not as clear-cut as it might appear, according to O’Halloran. “There is the issue of healthy debt and bad debt,” she explains.
“Healthy debt is when you borrow money to improve your life and when you can comfortably manage this debt. It might be to buy a car in order to get a job, for example.
“Bad debts are those that drain your wealth, are expensive and unaffordable. Normally, this debt would not be described as supporting any long-term value, or has not been used for a personal life event.
“Bad debts are likely to have unrealistic repayment plans and often run when people make impulse purchases of items they don’t really need or borrow money to pay everyday bills.”
Cronin is largely in agreement. “Debt in itself is good, because debt is what allows us to buy our houses and our cars and whatnot,” he says. “It’s only when debt becomes a problem that people tend to need help and support.
“If you’re taking out any sources of credit, like a loan, a credit card, an overdraft, it’s important to sit down and do the sums to see can you actually afford the repayments.
“Also, consider what would happen if you were out of work for three months or six months. Could you still afford the repayments? Would you have a buffer to fall back on? The reality is if you can’t afford the weekly or monthly repayments, you shouldn’t be taking it out.
“If a credit agreement is defaulted on, it is recorded on the central credit register. People might not think that is a big deal today or tomorrow, but if they are applying to another loan or a mortgage in a few years’ time, that will still be there and it will have to be explained.”
