Wealth Check: 'How can I manage my finances as a mature student?'

Becky Pillinger has been working as a research assistant at a university for the past 21 months, but is hoping to start a four-year PhD in October. If she is accepted on to her chosen course, she will receive about £13,000 a year tax-free in funding, but will have to give up her present job. The 27-year-old wants to continue renting her current flat, which she loves, but is concerned it might be too expensive for a PhD student.

As a result she has recently slashed her spending, with some success, but is keen for extra help and advice. “I somehow got through pretty much what I received each month,” Becky admits. “I’m now trying to cut down on what I spend in order to be able to stay here. I don’t want to go into debt, but I want to keep living where I am without having to live on baked beans to do so.”

Becky has no dependants and contributes regularly to her employer’s pension scheme at present, paying 6.35 per cent of her salary while her employer contributes a further 14 per cent. Advice this week is given by independent financial advisors Ian Hudson of Hudson Green and Associates, Raj Shah of Blue Wealth, and Darius McDermott of Chelsea Financial Services.

Case notes

Salary: Around £2,550 a month gross.
Monthly outgoings: About £563 in taxes, £1,195 on bills, food and essentials, £100 on repaying interest-free loan from parents, £100 on savings, £410 on other activities (clothes, holidays, socialising, entertainment) and £162 a month in pension contributions.
Savings: About £1,060 in a bank current account
Debt: £19,000 remaining on an interest-free loan from parents. No overdraft or other debt.

Spending and saving

“Becky has already made a sensible effort to control her spending by attempting to live on her anticipated budget,” says Ian Hudson. “There are some advantages to becoming a student again, most notably that her income tax, national insurance and council tax bills will reduce to zero.” Hudson suggests that Becky checks her utility bills are the cheapest deals by visiting www.uswitch.com, but feels that the majority of savings can be made through reducing spending on luxuries, eating out, holidays and entertainment: “That is not to suggest that she should live like a hermit for the next four years, but ultimately, sacrifices are going to be needed,” he says.

Both Darius McDermott and Raj Shah agree: “This is an area where she can make some serious saving, but it will mean swapping the Maldives for Margate and the high street for the Sunday market,” says McDermott.

Shah believes: “She may have to make a decision about study or lifestyle. Either she’ll have to move into a cheaper flat, or have a lovely flat and no money to do anything else.”

Both Hudson and McDermott feel that by keeping her savings in a current account, Becky isn’t making the best of her money. McDermott advises: “Becky should switch her savings into a cash ISA. Barclays is currently offering the best instant access rate at 3.55 per cent with a minimum deposit of just £1. This should be kept as an emergency fund.”

Hudson suggests diverting any excess monthly funds into a savings account: “One of the most competitive accounts is Barclays’ Monthly Savings Account, which offers a gross rate of 5.84 per cent (AER 6 per cent),” he suggests. “She can invest up to £250 monthly, which I believe represents an excellent opportunity and incentive to save.”

Debt

“Becky may also want to ask her parents if she can take a payment holiday on her loan repayment until she is earning more money,” Shah advises.

McDermott adds: “While it is admirable that Rebecca has no debt at the moment and wishes to remain clear of it, she may consider negotiating a small interest-free overdraft as a precaution to avoid any nasty bank charges. Some months she may be on the breadline, so an overdraft, if utilised correctly, may help her over any lean periods.”

Hudson wonders if the outstanding debt to her parents can be insured: “It might seem inappropriate to suggest life assurance, but actually it is not – her parents would suffer financial loss if she had an untimely death; therefore it would be sensible and cost-effective to insure against that chance, however remote.

“Her parents can effect the policy in their names, or she could effect it herself, putting the proceeds into trust for them. The debt can be insured for just £5 a month.”

Pensions

“Fortunately, Becky does not appear to be from |the ‘spend-today-worry-tomorrow’ generation Britain has reared,” observes McDermott. “Unlike many of her age group, she is thinking about her future and how she will fund her retirement. She is fortunate enough to be a member of the university’s final-salary pension scheme; however, when she returns to employment she must not only start again, but increase her monthly contributions, as currently her contributions will fall well short of the retirement income she aspires to.”

Shah agrees: “I understand why she wants to stop paying,” he says, “but if she can pay something into a pension it’d be easier for her when she starts working again. The cost and impact of a delay is something she needs to consider.”

For a free financial |check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or send an email to wealthcheck@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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