How to help your son or daughter leave university with a degree in financial independence?
So, your ‘young adult’ has just stepped out into the world of University.
With mixed emotions you helped them prepare, with a car full of their worldy belongings and a food parcel to feed the masses. You felt proud of everything they have already achieved and excited as they start the next journey of their life, but how confident are you that they will leave knowing how to be financially independent?.
University is the perfect place to learn how to become financially independent
Financial independence doesn’t necessarily mean being able to give up work whilst your investments ‘pay’ you a monthly income, it can mean simply learning how to manage your money so that you don’t rely on others i.e. the bank of mum and dad.
University is the perfect time and place for your son or daughter to practise managing their money. They have ‘real bills’ to pay but yet they are often cushioned from all of the costs of living, they have everyday temptations and face constant decisions on how and where to spend their money.
Clearly their main aim is to get a degree, however learning how to take responsibility for themselves is also a huge part of university life. Along with mastering a mean macoronic cheese, getting themselves to lectures on time and working out how the washing machine works, learning how to manage their money is definitely high on the ‘Life long skill list’.
So, how can you help them graduate with a ‘degree’ in financial independence?
Although you might not feel they listen to you or they value your opinion, they will be taking on board some of what you say, and surely it’s better to try to teach them than wait for them to ask you for money.
Here’s a few starting points for you to help get them on their way to financial independence:
1. Know what money is coming in
Before heading off, they should have a good idea of how much money they will have through grants, loans, part time jobs or parent hand outs. The first thing to do is know when the different sources of income are due, student loans are often paid at the start of each term so need to be budgeted to last the entire term.
2. Know what money is going out
It’s difficult to plan outgoings until they get into student life, but it’s a great idea to estimate how much they might spend. Just a simple spreadsheet will do the job, list out your essentials such as tuition fees, rent, food, bills (phone, electricity/gas, council tax, insurance etc) and entertainment.
3. Know if there is a shortfall before you fall short
By estimating what they have coming in and going out and importantly when the money comes in versus when they need to take it out, they are working out their cashflow. Cashflow is important because it will help them work out if they are likely to run out of money and when.
There are plenty of budget planners online such as money saving expert budget planner which will help keep track of money in and out.
4. Plan for shortfalls
If things are looking a bit tight at the end of the term or all bills seem to come at the same time, they need to plan to fill the gap e.g. part time work, borrowing from family, dip into overdraft etc
Have a look at the estimated spend again, is there a way outgoings can be reduced? Could they lift share with someone who has a car to reduce travel costs? Could they get together with house mates and share cooking to reduce food bills?
5. Plan for the unexpected
Life has a habit of throwing a few curve balls occasionally, such as a bill they hadn’t considered, where possible advise them to keep a bit aside (£100 or so) for those occasions when they need a little extra.
6. Discounts, discounts and more discounts
One of the great things about being a student is that they suddenly are a very attractive market for lots of companies who try to entice them with discounts. Many retailers (from restaurants, clothes and technology) will offer discounts of 10% or more, and if they don’t, don’t be shy just ask.
7. Avoid the temptation to ‘stick it on’ their credit card
Whilst it’s a good idea to have a credit card to help them build a credit record, they need to be aware of the full costs of spending on their cards – it most definitely isn’t ‘free’ money and shouldn’t be a temptation to add on that last round of drinks or those new leather boots.
8. Keep tracking the budget
We no longer use cash as much as we used to, which means tracking our spending is a bit more tricky. With cash; when it’s gone it’s gone.
By encouraging them to keep their budget planner up to date, they are much more likely to know how much they’ve got available to spend and avoid unexpected credit card bills.
If you would like to hear more from me and recieve a copy of my ‘12 step guide to mastering your Money Mindset’, you can sign up to my regular newsletter.
Fay is a financial mentor who champions individuals to take charge of their money through the company she founded at www.lookafteryourpennies.com
Fay is the author of “7 Steps to teaching your child to save: A parents guide to raising financially independent children” available to buy on Amazon kindle for just 99p, also available in paperback.