From understanding student loan repayments, to calculating if you’re ready to move out, here’s what you need to know
It’s late April and those of you in higher education will currently be torn between a looming fear of final assessments and a looming fear of entering the workplace and post-graduation life. Finding your way in the creative industries is hard enough as it is and, while no one is in it for the pay, having a handle on your personal finances nonetheless has a very direct impact on your ability to sustain your creative work.
Life after graduation is sort of a weird time. After three years of independence, it often takes a surprisingly short spell at home before you realise that, actually, you very much need to be anywhere else. No shade on your parents (I’ve met them and they’re wonderful), I think it’s just an evolutionary thing.
“Establishing a few good financial habits could make a real difference to your ability to survive initial knocks”
Roles in the creative industries lack the graduate schemes, clear-cut salaries and HR conveyor belt of corporate roles. We all know this going in, but there’s also a part of each of us that is nonetheless banking on being the lucky individual who just happens to land a salaried dream job out of the gate.
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More likely, you’ll wind-up self-employed, working part-time out of the industry, in work experience/apprenticeship positions or some combination of all three, meaning it can be hard to figure out how or when you’ll be able to support yourself.
As part of my Creative Money workshops, I’ve been talking to creative students about how to set themselves up financially for life after study. This can be an expansive conversation, but there are five points I think it’s important to get across…
1. Setbacks are normal (pt. 1): Getting used to it takes time
Even in the most glitteringly successful creative careers, you will definitely encounter a hefty amount of rejection and you will very likely face some form of redundancy.
In addition, if you’re anything like me, you will entertain an ongoing series of identity crises. I question who I am, what the hell I think I’m doing and tell my wife ‘I’m leaving music journalism’ roughly every six months.
“The truth is that your emotional and financial resilience is built over time”
I am not sure if the right word for all of this is ‘normal’, but it’s certainly par for the course in creative work, as are many positive elements, for example: meeting interesting people, not dreading the alarm, moments of intense, victorious elation and bragging to people at house parties.
I don’t say this to deter anyone, more to reassure you that when the time comes that one or all of the above is happening to you: it’s not your fault, it’s not a sign – it’s just your turn.
Bloggers will often say unhelpful things like, ‘get used to it’, but the truth is that your emotional and financial resilience is built over time. Starting out from a place of relative strength, then establishing and building on good financial habits could make a real difference to your ability to survive those initial knocks.
2. Setbacks are normal (pt. 2): Emergency expenses WILL occur
I’ve said this before but it bares repeating: you cannot know when or where an emergency expense will hit you, but it will definitely happen.
You can really limit the impact of these by building up an emergency fund. Typically, the advice is to initially aim to hold £1,000 or a month’s expenses (whichever is higher) in reserve and then expand that to three months’ expenses over the longer term.
“Creative work tends to operate on a ‘feast and famine’ cycle, so putting money aside is crucial”
If you’re living at home and keen to move out ASAP, this might sound like the sort of expense you could skip (particularly when you might be factoring in rental deposits etc.), but it’s worth sticking it out a few months more and building that cash buffer if you possibly can.
Not only will give it you a sense of extra confidence and security, but starting out with an emergency fund in place could make the difference between you maintaining that independence or having to move home for a much longer stint down the line.
Creative work opportunities tend to operate on a ‘feast and famine’ cycle, so putting money aside is crucial. What longevity, stability and freedom I have achieved doing this work has been directly proportional to my ability to accept that I have to save.
What’s more, it has probably not escaped your attention as a new graduate that we are living through the worst economic calamity for 300 years. We’ve all got our fingers crossed for a swift recovery, but when newsreaders talk about ‘economic pain’ in certain sectors this is usually code for ‘we have shafted the young in order to protect the management team’s pensions’. Protect yourself with savings.
3. Know how much you need to support yourself
This is all about figuring out your likely monthly expenses figure.
Try to be accurate. As an inherently optimistic
idiot person, I find this quite difficult. The best way I have found to do this is to stop predicting and start actually tracking my spending using a budgeting app.
“Don’t judge yourself on what you see – when you involve emotions figures have a habit of getting ignored or rounded down”
You download it, connect it to your bank account and it will automatically categorise your transactions. Use it for a month or so, review the information to make sure it’s correct, but don’t judge yourself on what you see – when you involve emotions figures have a habit of getting ignored or rounded down.
If you’re living at home after graduating and looking to move out, this will give you a reasonable idea of your current spending and what non-essential items you could cut if you decide to redirect that money towards a higher priority (e.g. rent on your new place).
Your app will give you monthly totals. Add these up and factor in your projected utilities, council tax (more on this below), rent costs and a savings buffer to get an accurate picture of how much you’ll need to earn on a monthly basis to support yourself.
Here’s a handy tool for estimating utility bills for a property, based on its location and how many rooms it has.
4. Get a full picture of your accommodation costs
Accommodation is one of the ‘big three’ expenses, alongside food and transport, so spending time to get it right will pay-off month after month.
We all have access to Rightmove and Zoopla, so it’s now easy to establish a reasonable rent for an area with a bit of online investigation.
“Council tax is not a sexy topic, but it never fails to surprise at least a portion of new graduates”
However, do make sure you investigate the area (talk to people who know the area, Google it, look at the transport options). Then book multiple viewings and spend a little time walking around there on the day – you’ll soon get a feel for whether it suits you and your budget. It takes a bit of effort, but it’s worth it.
Also worth noting: agents have a habit of showing you places at the top of your budget, so resist their tricks and be cautious about committing on a big rent payment.
As above, don’t forget to factor in utilities and council tax when you’re totting up the pros and cons. Council tax is not a sexy topic, but it never fails to surprise at least a portion of new graduates. It’s a tax on domestic property set by your local council and paid by the occupants of that property.
I have lived in five cities around the UK in the last decade and it’s varied wildly. My anecdotal experience is that it (perversely) tends to be higher in cheaper cities, because they are skint. Currently, I live in Liverpool (you should, too – it’s brilliant) and it’s about £130 a month for my house, which is… unpleasant.
If you’re living with others, council tax is an expense shared between all occupants, much like rent and utilities. So before taking on a rental room or property, make sure you find out what bills are included and what share you’ll be expected to pay. Note them down, so you can make a proper comparison.
Be aware that council tax, like most of these expenses, also has a nasty habit of increasing each year. This (and the fact you didn’t have to pay it a few months previous when you were young and carefree) is why everyone complains about it… You will get used to it, though.
5. Don’t fear your student loan repayments
There is a lot of noise around the student loan system in this country.
Agreed, it is not perfect and compared with your parents’ system, or even the system of 10 years ago the figures can seem astronomical. However, I’m in agreement with Martin Lewis (great video from him below) in that it behaves much less like a loan and is really a misbranded graduate tax.
“In England, you won’t start repaying your student loan until you are earning over £27,295 a year”
Tax doesn’t sound like much more fun, admittedly, but this is a ‘progressive tax’ (the good kind). This means that if you earn more you pay more and if you earn less you pay less.
That’s right: what you repay is based on what you earn, not what you borrowed and after 30 years, any unpaid amount is wiped.
This differs dramatically from a traditional bank loan, which is calculated on what you owe, not what you earn. In that situation, there’s always a fixed minimum payment, it’s up to you to setup and maintain those payments and it is never wiped (with the possible exception of declaring yourself bankrupt).
When do I have to repay my student loan?
You won’t start repaying your student loan until you have left full-time education and are earning over £27,295 a year (for April 21-22) in England.
If you’re self-employed it’s calculated as part of your annual tax return and if you’re salaried it’s repaid via PAYE (your monthly paycheque).
How much will my student loan repayments be?
In April 21-22, your student loan repayment will be 9% of any amount you earn over that £27,295 threshold.
For example, if you earned £27,395 (£100 over the threshold), you would repay £9 for the year.
£27,395 (your earnings) – £27,295 (the threshold) x 0.09 = £9
If you earned £28,295 (£1,000 over the threshold) you would repay £90 for the year.
If you want to get some sense of what this might mean for you and your potential income situation, pop your figures into this salary calculator (and select repayment plan 2 from the student loan options).
Bear in mind, too, that a significant number of creative workers won’t repay any loan. A poll by the Musician’s Union last year found that 87% of musicians expected to earn under £20,000 in 2020. If you’re repaying anything, take it as a good sign!