Monday, April 16, 2018

How using your Student Overdraft can save you money in the long run

Hey guys, 

often people wonder how I am able to afford all my trips abroad and how it does not cause me a financial strain although I am a student just like everyone else. I am fully financially independent from my parents and take care of my own living expenses and I have so far paid for all my trips abroad with my own money. So you may think - how do you do it? Have I got a lot saved? Nope not at all. 

When talking about overdrafts I feel there is such negative experiences and thoughts by students and how scary they are and about how we should stay away. Well let me tell you, I am a student too and I can truly only tell you positive things about using your student overdraft. To use your overdraft you have to be wise with your money and I am starting to think that it is a skill to master this as many don't understand where I am coming from when I try explain it to them in a brief conversation. So I thought it's time I explain in detail how I do it. 

Overdraft explained

Okay first of all I will explain the overdraft itself in detail as many don't actually everything about it.
When you apply for an overdraft the overdraft limit is set by your bank based on various factors. This limit can be slowly increased over time if you can prove to your bank that you know how to use the overdraft and will pay it back. In first year of university I initially had an overdraft limit of £500 and by the end of first year they had increased it to £1500 .

Common misconceptions 

Using your overdraft smartly does not affect your credit score/rating! If you haven't paid back your overdraft for over a year then obviously the bank can see you'r struggling and not good at keeping clean. Whereas if you use your overdraft yet always manage to pay it back within a reasonable amount of time then this is actually seen as a positive thing as it shows that you know how to manage your money!

There is NO interest fee on the allowed overdraft! Meaning you will not get charged anything for using your overdraft. You would only get charged interest for any amount you spend above the overdraft limit. 
One might say - an overdraft is using money that you don't have and why would you allow yourself to think that you have it when you don't? You should stick to the money you have and learn to live with it. This thinking process is part of a completely different mindset to what I have. Maybe it is because everything I say and do has to do with the future or maybe it is because I have a business mind. Either way that's not how I think life works. Money doesn't always come and leave at the right time. 
Let me give you an example. It's November and end of the university term is almost approaching. You're super broke and your bank balance is on let' say £50 but you see a 5-day trip to Morocco for £200 and your friends are up for it. You know that during the one month December university holiday you would be earning minimum £800. Would you or would you not go into your overdraft, which will cost you nothing to use the money to pay for this trip? Of course I would! That's how I afforded my trip to Iceland. In the moment I didn't have the money but the deal that we saw would have only been available in the moment. I'm only going to be in second year once and only have these people around me once. Why would I not go?

Okay let's pretend I had decided to not go on this trip because I did not want to use my overdraft. In January after one month of working, what would I do with the £800? Let's be honest 90% of us, including me as a student would use that cash throughout February, March and April to treat ourselves on short term happiness - food, cinema, booze and nights out. Exactly! Yet I went on this trip and have everlasting memories and experiences that I will never forget. Oh and don't get me wrong in February, March and April I did spend money on booze, cinema etc. yet within limits. So I got the best of both worlds! 
Don't ever limit yourself because you don't have it in front of you in the moment. Don't let money be your limiting factor in life. Find a way, work for it, earn it and do it! At the end it wasn't free money at all, I worked for it all Christmas. Day and night, crazy long shifts.

Top tips:- only spend your overdraft if you know you can pay it back within the next 2 months - not because of an imaginary job you may soon find or because of your estimated Christmas money you expect to get! Only do it if you have a guaranteed job! 
- DON'T EVER spend money on food. You're lying to yourself if you think that food is worth entering your overdraft for! - do not exceed the overdraft limit as this can affect your credit score really badly and the interest rates are crazy!! - make sure you clear your overdraft always in time, don't leave it too late, especially not till after graduation  
How can it save you money in the long run? 
Let's say you are responsible to get your own phone and pay for your own phone bill. Pay monthly contracts are usually way more expensive but that's the only way you can afford to pay off for your brand new shiny iPhone X. OR waait is there another way? A pay as you go brand new iPhone X is £1150 and a monthly sim is only £12 a month. This works out cheaper overall and if you don't have the money all at once why don't you use your overdraft to pay for your phone and then you can make sure that you move the £55 that you would pay monthly to the phone company into your student current account instead. Does this sound too complicated for you? I did warn you! This is only for those willing to be wise with their money and those that have the determination to work for it. You gotta be money smart! 
Yes taking £1150 out in your overdraft makes your bank balance look bad but a bank balance is for yourself. In the long run you're the smart kid saving the money because spent your overdraft wisely and saved money though it instead of spending that money on cheese pastries at your local university food store. To maybe make it easier you could keep the money you actually have in your savings account so you always know your actual balance. Or you could keep a spreadsheet like I do. (I don't own an iPhone X btw!! I do pay for my own bills though). 

This example can be applied to anything that you would usually get charged interest for.

Lastly please remember, be wise! Don't go into overdraft for silly things! I value travelling, if there is anything you value as much as I value travelling then please go ahead and chase your dreams and use your overdraft ONLY IF you can pay it back with your job money. PS: FINDING A PART-TIME JOB ISN'T HARD!!! I HAVE 3!!! You gotta work endlessly for what you want. 



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