Student needs to stretch her funds

Beccy, 21, is about to become a student and wants to avoid getting into debt. She writes:

'I will be starting a degree at art college in London in October. I left home over a year ago to do an art foundation course, but the art of budgeting continues to elude me. During term time, I never seem to have any money left at the end of the month, though I have managed to stay out of debt so far.

I am aware that the London life comes at a price and that I will have to pay out a fair amount for art materials. I am currently working as a waitress to try and build up some savings but when I start my degree I hope to spend most of my time in the studio rather than behind the counter at the local kebab house.

I need help in working out how to make the most of the funds available to me over the next three years or so, without storing up trouble for the future.

My parents have remortgaged their house to provide a fund of £20,000 for myself and my brother, who is also starting his university course this year. While I am very grateful, I am worried about the implications for them as regards interest and repayments. My childhood home was repossessed in the early 1990s when they could not keep up mortgage repayments, which has made me wary of getting into debt and unsure of how to use this money.

I have applied for the full student loan (around £4,500 a year, I believe, for students living away from home in London). I have roughly £3,000 in savings from a friendly society policy my mother took out for me, and I also intend to work during the holidays.

How should I manage these sums? I have around £1,000 in a mini cash Isa and a current account with Nationwide, which does not provide a specialised student account. Do you recommend switching to a bank that does?

Are there any good ethical choices? And finally, are there any steps I can take now to safeguard my financial future after graduation - apart from swapping art for accountancy?'

'Set yourself a budget - and stick to it'

The fact that you are thinking seriously about how to manage your money now before you get to uni is a good omen for the future. Some students who have not managed their own financial affairs start getting into debt almost immediately by going out every night. That you have kept out of the red in your foundation year also shows you must be on the right track.

You are right to be wary about the cost of living in London. It is the most expensive option for students. The National Union of Students puts the cost of university, including tuition fees and living expenses, at an estimated ?8,500 a year, but in London that rises to more than ?10,000. So your student loan, if you qualify for the maximum of ?5,050 (in London), will only go half way to covering it.

The best thing to do with your money is to give yourself a monthly budget and stick to it. Joanne Cox of Co-operative Bank Financial Advisers says the secret of budgeting is to keep it simple.

She explains: 'The student loan will be dispensed in three parts at the start of each semester. Divide up how much you have by the number of weeks you need it to last. Similarly divide up the funds from your parents into the number of years and then months you will need it for. If you are not sure you can resist dipping into it, ask them to keep the funds on deposit and forward your allowance each month by standing order.'

She suggests you write down how much income you will have available for the month or week in a notebook. Start by deducting any standing orders or direct debits and then make a note every time you spend money, withdraw cash or write a cheque. She says: 'It is amazing how natural it becomes to keep within budget if you can literally see the money going down.'

To be really disciplined, you should note down every purchase you make, be it food, cosmetics or a night out. That way you can see exactly where the money is going and work out where you can make savings should you need to.

Anne-Marie Blake, head of NatWest Student and Graduate Banking, recommends you withdraw your spending money on a set day each week rather than keep visiting the cash machine for a tenner here and a tenner there, which can easily push you over your financial limit. Look for ways of cutting costs: 'Shop for food with friends - buying in bulk can save money and lets you take advantage of "buy one get one free" offers. Make sure you claim discounts with your NUS card and also look in your Student Union for one-off deals,' she suggests.

Opening a specific student bank account is probably a good idea as it will give you a built-in safety net in the form of an overdraft facility, which will usually be free if you keep within the limits. Free overdraft limits generally start at ?1,000 to ?1,250 in the first year rising to ?1,600 in the third year. Blake points out that as they are interest free, it may be worth using that facility rather than withdrawing savings, which will be attracting good rates of interest. But if you do not feel comfortable with that idea, there is no need to use your overdraft facility unless you really have to.

Most of the main high street banks offer student accounts. Check out the incentives on offer - some will save you a lot of money. If you are expecting to travel home regularly to visit your parents, NatWest's free five-year young persons railcard could come in useful and will save you ?100.

If you want an ethical option, there is the Co-operative Bank's student account. This offers free overdraft facilities but no incentives. Full details of the bank's ethical policy can be found on its website www.co-operativebank.co.uk. Another useful website is www.hotcourses.co.uk/studentmoney which also has guides to award funding, grants, budget planners and loan repayment tables.

Cox advises that you make use of the services of the Students Union. They will have lots of useful advice and information on all aspects of college life.

The good news, according to NatWest's research, is that the average starting salary for graduates rose 7 per cent from ?12,659 to ?13,600 this year. This proves, says Blake, that 'the cost of university is clearly an investment in your future earning potential'.

Beccy's to-do list

1. Work out how much you will have available to spend each month.

2. Ask your parents to set up a standing order to your account.

3. Buy yourself a notebook and write down everything you spend so you know exactly how much you have left.

4. Make use of student discounts and other money-saving offers.

5. Open a student bank account that offers a free overdraft facility.

6. Remember that just because you have an overdraft facility, you do not have to use it.

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Do you need some financial coaching? We help readers to solve their financial challenges. This might be to stop spending and start saving, pay off debts, plan a pension or even to choose a bank account. You do not have to be identified. We deal with as many cases as possible in the paper but cannot give personal advice if your letter is not selected for publication. Write to: Money Coach, Cash, The Observer, 119 Farringdon Road, London EC1R 3ER or email: cash@observer.co.uk.