What should I be considering, as a student with an income for one year?

Question

I'm a 3rd year university student (age 20) in the UK, and I'm half-way through a years placement that's paying ~£1200/month which finishes in July. I'm engaged, and looking to get married after I've finished uni and I'm in a job and house. Possibly one that I own, but that'll depend on quite a few factors that I can't control right now. Either way, I'd like to have at least part of a down payment ready.

I have an ISA with HSBC that's at 1.4% with ~£7400 in it, with £100 going into it monthly as my pay comes in. I'm also putting £100/month into a separate savings account each month as I'm looking to make a large (relatively speaking) purchase in July, and the account should have ~£1000 in it by the point where I'm looking to withdraw.

After this year, I'm going to be unable to pay substantial amounts into the ISA due to not having an income, so I'll likely shift it to a higher interest one that's fixed and doesn't allow deposits.

My question is, is this a sound strategy and is there anything else I should be doing?

Sub-question: Should I consider getting a credit card to start off my credit score, but use it for small purchases and pay off each month? HSBC offers a £500 limit card catered to students that I could use to 30% and pay off straight away.

Answer 1

This sounds like an extremely sound strategy to me (and in particular I admire your forward thinking and planning and saving at this point - many students and young adults would not be so prudent).

When preparing for a period of reduced income, there are two factors to take into account: bolstering your savings as much as possible (which it sounds like you are already doing) and doing as much as you can ahead of time to reduce your expenses during the coming lean period.

For example:

• As a student, you could look at last year's reading lists for the course(s) you are doing and see whether you can obtain any of the books cheaply ahead of time; there is a risk that the lists might change, but on the other hand if you wait until the new lists come out, you don't have as much time to obtain the books and might end up having to pay more for them.
• Use the time you have now to make sure your car or bike is serviced and in good working order so you don't end up having to shell out for emergency repairs when you can least afford it.
• Scour ebay or local charity shops for cheap off-season clothes that you can store until you need them to save buying them "at the top of the market" when you actually need them.
• If you have access to a garden, vegetable patch or allotment, or even some tubs on a patio, consider planting something easy like potatoes, peas or strawberries which you can then use to supplement your store cupboards with fresh produce over the coming year. You do have to be careful here not to end up spending more on equipment and supplies than you gain in saved money.
• If you have birthdays or other gift-giving occasions coming up, consider crafting cards or gifts rather than buying. With enough advance notice you can get things made that are perfectly as good as any bought gift.

Similarly, any other expenses you may have down the line that you can reduce by taking action now - it's all about the trade off between money and time, if you have the time in advance to spend you can save yourself the money down the line.

On the credit card front, I think it might be more prudent to wait until you have graduated and have a job and a regular income. I don't believe that a student card (which would presumably lapse, or convert to some horrible deal when you graduated) would make that much impact on your credit score. If you are serious about wanting to buy a house as soon as possible then a regular income will be far more helpful to you than a credit card history at that point. Once you have the regular income, apply for a standard (non-student) credit card, then start looking at mortgages a bit further down the line. Additionally, although it sounds as though you are very rational and non-impulsive in your behaviour, having access to a credit card at this point seems like it could be a big temptation not to stick to your carefully-calculated budget.

Best of luck!

Answer 2

You don't really want to lock your money away for 2 or more years when there are life changing events coming up in the near term. Find a savings account that will allow withdrawals during the year but with a high rate. Once you have completed your qualification and have a steady income you can budget and start locking money away at a higher rate, I know that the Nationwide has a 2% Save to Buy account for example.

The rule of thumb has been to have instant access savings for 2-3 months of living expenses and then the rest locked away in higher long term savings. You are not going to be able to predict whats going to happen with income and expenses around the time you graduate.

I wouldn't get a credit card to build a credit score thats not really a good motivational reason. I would recommend getting a credit card if you have the willpower not to use it for the credit.

Credit cards offer you greater protection than a debit card and some pay cash back on your purchases. If you set it to pay the balance each month and think of your bank and credit accounts as one, then it works out great.