Tired of having no money? Try these tips from an accounting expert!
The term ‘student’ is synonymous with the phrase ‘flat broke’. Being on the edge of poverty is just par for the course for student life, similar to nights at the SU and campaigning for the return of pound a pint. Yet, life needn’t be as financially tough as it currently is.
The secret to stretching those pennies further isn’t stealing salt packets from McDonalds or reusing paper plates. Even the most hard-done-by students can keep themselves in the black by following good financial practices.
It’s very easy for outsiders, parents and the government to bemoan students for what they spend their money on, but with the new-found responsibility of running your own life, juggling studies, and keeping track of every penny you spend, pinning down exactly where your money is going can be tough. Becoming a genuine, qualified chartered accountant takes years of work, so how can you expect yourself to become an expert in money management overnight?
You can’t, and you shouldn’t, but that doesn’t mean you are without hope.
Accountants spend their lives managing the money of businesses and professionals. It’s in their job description to keep costs down and do more with profits. Applying their way of thinking to your own financial management can be incredibly rewarding.
Before you scoff at the idea, we aren’t talking advanced and confusing processes. We’re talking about the basic foundations of good accounting practices. Don’t believe us? Before you give up, consider using these simple but effective techniques to manage your student loan like a professional accountant:
Establish Your Net Profitability
First things first, how much money have you got coming in?
And how much money have you got going out?
The maximum amount for maintenance loans is £8,200 for a student living away from home (outside of London). So, assuming that is what you’re given, we start with this as our ‘gross profits’. Then, we have to consider unavoidable expenses, like rent and bills. This includes TV licence fees, phone bills, WiFi — anything you are contracted to pay.
For the sake of this example, let’s put this at £5500 a year.
Now we have our net profits: £2700. This is our money we have to budget with. A business never operates from gross profits, or else it would always overspend, as will any student.
Having your net profits clearly laid out, you can start to look at budgets. Establish how much money you’ll have for the semester, what you’ll need to spend money on — food, books, entertainment — and start to formulate a budget.
Create Spending Accounts (Piggy Banks Count!)
Once you’ve established your budgets, you need to separate your cash.
Separating money does not give you extra cash, but having the full whack of student loan in one account makes it oh so tempting to spend. When a Domino’s sounds like the best thing in the world, it’s easier to justify it when your balance reads £800 than it does £80.
Establish ‘spending accounts’ in whatever way you choose.
You may wish to set up extra current accounts, use apps like Loot or Monsense, or you can simply make cash withdrawals and put them in separate (and secure) places. Whatever you do, keep your money for your essentials away from your cash for clubbing.
In a business environment, an accountant won’t mix money for operational costs such as rent and payroll with funds set aside for expansion and additional expenses. The potential for confusion and overspending in one area, leading to disaster in another, is very real.
If they wouldn’t do it, you shouldn’t either.
Employee Zero-Sum Budgeting
Zero-sum budgeting sounds like a horribly complex process, but it’s actually a very simple concept.
Used by businesses around the world during times of immense financial strain, or by students after blowing half their loan on freshers week, zero-sum budgeting is essentially a system of re-establishing a status quo every time you acquire new income.
When you get your first chunk of loan in September, you’ll allocate certain amounts of money to different areas of your life. You create a budget. Zero-sum budgeting simply means that when the second whack of loan comes in around January, that you don’t follow your September budget system, but pause and re-evaluate.
Look at your previous expenses and find where money was wasted; where your budget was being misplaced. Did you allocate £200 to nights at the SU, but ended up eating baked beans on toast for the entirety of December because you ran out of cash? Then instead of doing the same again, you shift budgets around to match your current status.
For example, during the winter months, your energy bills may rise, and therefore you need to set more cash aside to stop yourself turning into Frozen‘s beloved Olaf.
Zero-sum budgeting means never accepting a previous budget. It means constantly re-assessing your situation and reacting to the ebbs and flows of student life.
Learn to Love this Word: Spreadsheets
As any professional accountant will tell you, good financial management is all about one thing: control. To truly manage a budget and watch what is happening to your money, you must know exactly what is coming in and what is going out.
This is especially important for the zero-sum budgeting process.
While most businesses will use fancy, expensive accountancy software, any student can draft up a simple spreadsheet on Microsoft Excel or Google Drive.
Tracking all your expenses is what accountants know as the fine art of bookkeeping.
Every time you make a purchase, be it a textbook, a food or a Costa coffee, keep the receipt, go home and record it. Make sure you update your spreadsheet regularly — and honestly — to ensure accurate results.
You can then look at your spreadsheet to see exactly where money is going. This allows you to see bigger pictures revolving around spending, such as where money is being wasted and how well you are sticking to budgets.
Visualisation helps you keep yourself aware of your money and encourages better spending habits. From these spreadsheets, you can make vital decisions that benefit you in the long-run and see your financial health improve.