Money, money money... now what?

The relative riches of paid work will soon replace the dark days of student poverty. But what to do with it all?

THE IDEA of a 100 per cent salary increase is not one that, at first glance, poses too many problems. On the contrary, the instant response to an increased salary tends to be increased spending - holidays, clothes and a meaningful relationship with a Gold card. The more measured response, however, proves to be somewhat different.

"What do you do with it? How do you invest it and what percentage should you invest?" says psychologist Jonathan Maddox. "Financial matters can seem incredibly daunting if you've only ever had a current account and a Visa card. In order to enjoy money, you have to be in control of it."

The first thing worth noting, he says, is that the four main high street banks operate a policy whereby you can retain a student account for up to 18 months after graduating - although in some cases, it's necessary to request it.

The advantages are lower overdraft rates, no charges, and a more flexible attitude to going over your overdraft limit. There are no hard and fast rules, however, and it may be case of liaising with your account manager.

"It's really important to get to know your account manager," suggests David Sexton, who works as an IT sub-contractor. "If you get a relationship going with them, they are far more likely to help you out if you're having problems. I'd known my account manager for four years, and when I decided to set up my own business she was extremely helpful and it was like talking to a friend."

Indeed, when you are finally forced to transfer to a non-graduate bank account, overdrafts usually turn into loans which must be repayed. But ongoing communication with your account manager could mean he or she might make an exception.

When it comes to serious saving, an independent financial adviser (IFA) is your best bet. You may, for instance, want to know a bit more about investing in an ISA or starting a pension. IFA's are generally listed in the phone book and are not affiliated to any bank or financial organisation - thereby allowing them to sort out the most favourable option for you.

"When most people receive a salary hike, they tend to split it 50/50 - half to spend and half to invest," says Matthew Orr of Killik & Co Stockbrokers. "That's the easy part - then you have to decide whether you want an ISA or a pension, or go for stocks and shares. Basically, ISAs are similar to pensions apart from two factors. With an ISA, you pay tax on the money you invest now, rather than when you retire, as with a pension. Also, with an ISA you can get your money out at any time - with a pension its not yours until you retire.

"The common mistake with ISAs is to put off getting one until you're in your thirties," says Matthew Orr. "It may sound boring, but you should really start investing as early as possible. Put pounds 5,000 in an ISA at 7 per cent when you're 30, and it will be worth pounds 38,000 by the time you're 60. However, start it when you're 20 and by your 60th birthday it will be worth pounds 75,000. The differences are huge."

Finances can become even more complicated if you find yourself freelancing or working as a sub-contractor through your own company. Although getting an accountant may seem an unnecessary expense, it's well worth considering.

"An accountant is someone who can advise on all financial matters, not just tax," insists Mike Davis, an accountant specialising in small businesses. Say, for instance, your flatmate moves out, leaving behind what could be your dream office, replacing that 10-inch square space in the corner of the dining room table. Your accountant will be able to tell you how you can work the tax laws to make it an affordable option.

In addition, they will help you in claiming tax on courses and bills that you didn't even think were relevant. In any case, an average annual bill for an accountant can be as little as pounds 300.

One of the biggest mistakes freelancers make, according to Davis, is failing to save for the short term. "You have to remember that there's no company behind you - if you get ill or can't work, you won't get paid."

All the banks and building societies offer savings accounts - but if you have long-term investments, make sure you get one with instant access. "There is a huge choice of savings account," says Matthew Killik, "but its important to realise that interest rates change all the time. Generally, building societies do offer better rates, but sometimes a bank will have a special deal on. The best thing to do is ring round and see who is offering what. Money is not a static thing - it changes all the time and you have to be on your toes to keep up with it."