Studying abroad is an exciting and life-changing experience for most of the students who have studied abroad. It offers the chance to gain global perspectives, immerse yourself in a new culture, and pursue academic goals at some of the world’s top universities. Our character development is boosted through this enriching experience. However, with the thrill also comes the difficulty of handling your finances while in a different country. A vast number of students fail to recognize the financial challenges of studying overseas, resulting in unnecessary tension and potentially compromising their academic journey.
Financial errors are frequently made by international students, from underestimating living costs to relying excessively on loans without a solid repayment strategy. The positive news is that these errors can be prevented with careful planning and looking ahead. You can ensure your financial success while studying abroad by being aware of possible challenges and proactively preventing them.
Mistake 1: Underestimating Living Expenses
Underestimating the full scope of living expenses is one of the most common financial mistakes students make when planning their study abroad journey. Many students focus primarily on tuition fees and overlook the day-to-day costs of living in a foreign country. However, living expenses can significantly impact your budget and vary greatly depending on your destination.
Why It’s a Problem
Not having a clear idea about the expenses can lead to underestimation of living expenses, which might lead to a struggle to cover costs like rent, groceries, transportation, and utilities. A dip in the savings set aside for emergencies or increasing your alliance on loans, may lead to long-term financial strain.
This can lead to dipping into savings meant for emergencies or increasing your dependency on loans, which may lead to long-term financial strain. For instance, living in a major city like New York, London, or Sydney is significantly more expensive than in smaller towns or rural areas. Students who don’t plan for these differences can find themselves facing a financial shortfall just a few months into their program.
Examples
- Housing Costs: In cities like London, rent can easily exceed £1,200 per month for a modest apartment, while in smaller UK towns, you might pay £600-800. In the US, major cities like New York or San Francisco often have rental rates upwards of $1,500 to $3,000 per month, depending on the area.
- Groceries and Food: The expense for groceries and food depends on your location and lifestyle. Generally monthly grocery bills can vary from $200 to $500. Eating out frequently can further inflate these costs, especially in expensive cities.
- Transportation: Public transportation, taxis, or ride-sharing services are essential expenses that students often forget to budget for. In cities with extensive public transport systems, monthly passes can range from $50 to $150.
How to Avoid It
Before finalizing your budget, research the cost of living in the city where you will be staying. Many universities provide living cost estimates, and many online calculators are available for comparing expenses in different locations. Speaking with present students or former students who have attended school in the same city can offer a better insight into what to expect.
- Create a Detailed Budget: Analyze and maintain categories in your budgeting like rent, food, utilities, transport, and leisure. Be realistic about your lifestyle choices and adjust your budget accordingly.
- Add a Buffer: Maintain flexibility in your budget and allow for unexpected or fluctuating costs, especially if your destination has a higher-than-average cost of living. A cushion of 10-15% over your estimated budget can help cover any unplanned expenses.
Tip
Many cities offer student discounts on transportation and other services. Look into student discount programs early and take advantage of these savings to reduce your overall living expenses.
Mistake 2: Not Accounting for Currency Fluctuations
Exchange rates for currency can be volatile, impacting the total cost of tuition, rent, and other expenses. Many students fail to consider this element when planning their finances for studying abroad, assuming the exchange rate will stay the same during their time away. Nevertheless, even minor fluctuations in the exchange rate between your local currency and the currency of the place where you are studying can have a notable effect on your total expenses.
Why It’s a Problem
If your home currency loses value compared to the currency of your study destination, the amount required to fund your expenses overseas will rise. On the other hand, if your domestic currency appreciates, your expenses could potentially go down. However, relying on favorable currency fluctuations when making financial decisions carries a significant level of risk. If you fail to anticipate possible changes, you could end up spending more money on rent, tuition, and living costs than you originally thought.
Examples
- Imagine you’re an Indian student studying in the UK. If the Indian rupee (INR) weakens against the British pound (GBP) after you’ve set your budget, your costs could increase. For example, if the exchange rate moves from INR 90 per GBP to INR 100 per GBP, your tuition and living expenses in rupees increase by around 10%, even though the amount in pounds remains the same.
- A US student studying in the Eurozone might budget based on an exchange rate of $1.10 per Euro. If the dollar weakens to $1.20 per Euro, their costs will increase by about 10%, potentially throwing their budget off track.
How to Avoid It
To avoid being caught off guard by currency fluctuations, you need to plan proactively:
- Build a Currency Buffer: Include a currency fluctuation buffer in your budget. A buffer of around 5-10% over your estimated costs can help cover the difference if the exchange rate changes unfavorably.
- Use Currency Exchange Tools: Consider using online services like Wise (formerly TransferWise), OFX, or Revolut for better exchange rates and lower transfer fees compared to traditional banks. These services allow you to monitor exchange rates and convert your money when rates are favorable.
- Lock in Exchange Rates: Some financial services and banks offer the option to lock in exchange rates for future transfers through forward contracts. This way, you can secure a rate in advance, ensuring that you won’t be affected by any unfavorable fluctuations in the future.
Tip
Use apps like XE Currency or OANDA to continuously check exchange rates for up-to-date information. This enables you to make well-informed choices regarding the timing of money transfers and payments for large expenses like tuition.
Mistake 3: Relying Too Heavily on Loans Without Planning for Repayment
Depending heavily on student loans to fund studying overseas without a clear plan to repay them can result in prolonged financial strain. Many students focus mainly on securing the necessary funds for their tuition and living expenses, without considering the implications of repaying loans post-graduation.
Why It’s a Problem
Taking out a large sum of money with no repayment plan can result in financial challenges after graduating. Overborrowing or miscalculating future income for loan repayment can lead to debt management challenges when you enter the workforce. This can pose a challenge, particularly when your income after graduation is lower than expected or when you are facing a competitive job market with extended job search periods.
Examples
- Over-borrowing: Some students take out loans to cover their entire cost of living without exploring other funding sources like scholarships or part-time work. This can lead to a higher loan burden, making it difficult to repay once they graduate.
- High interest rates: Students who borrow large amounts without understanding the terms of their loan—such as interest rates and repayment periods—may face much higher monthly payments than anticipated, especially if they’ve taken out loans with high interest rates or variable rates that increase over time.
How to Avoid It
To avoid relying too heavily on loans and ensure you can repay them comfortably after graduation, consider the following strategies:
- Borrow Only What You Need: Avoid the temptation to borrow more than necessary. Create a detailed budget of your expenses, including tuition, accommodation, and living costs, and subtract any savings, scholarships, or part-time earnings you can contribute. Borrow only the amount that covers the remaining gap.
- Explore Scholarships and Grants: Before taking out a loan, exhaust other funding opportunities like scholarships and grants, which don’t need to be repaid. Even partial scholarships can reduce the amount of loan you need to take on.
- Understand Loan Terms: Make sure you fully understand the terms of your loan, including the interest rate (fixed or variable), repayment start date, and duration of repayment. Many loans offer grace periods after graduation, but it’s important to know when payments will begin and how much they’ll be.
- Plan for Post-Graduation Income: Predict your salary in your selected industry and area, then determine the portion that will be used for loan payments. Some loans provide income-driven repayment plans, in which monthly payments are calculated according to your income, making them easier to manage if your income after graduation is lower than anticipated.
Tip
If you find yourself overwhelmed by the thought of repayment, consider refinancing your loans or consolidating them after graduation to secure a lower interest rate or more favorable repayment terms. Additionally, Finnest can help you explore loan options that fit your financial situation and offer competitive rates.
Mistake 4: Overlooking Scholarships and Grants
Failing to apply for scholarships and grants is a major financial error that many students make. These available funds can greatly lessen the amount of money you have to pay for tuition, housing, and other study expenses. Scholarships and grants offer a way to alleviate the financial strain of studying overseas without requiring repayment, unlike loans. Regrettably, a lot of students are either uninformed about scholarships that are available or believe they are not eligible for them, causing them to overlook these chances.
Why It’s a Problem
Students often end up borrowing more money than needed after graduation by not taking advantage of scholarships and grants, leading to a heavier financial burden. Scholarships are created to recognize academic success, leadership skills, community participation, and financial necessity. Every year, many scholarship programs worldwide remain unclaimed due to students either missing deadlines or failing to apply, despite the thousands of available options.
Examples
- Government Scholarships: Financial aid is offered for international students, such as the Chevening Scholarship (UK) or the Fulbright Program (USA), which cover tuition, living expenses, and even travel costs.
- University Scholarships: Many universities provide merit-based scholarships for international students, which can cover a significant portion of tuition. For example, Australian universities offer scholarships like the Australia Awards for outstanding international students.
How to Avoid It
To avoid missing out on these valuable funding sources, it’s essential to start researching and applying for scholarships early in your study abroad planning process. Here’s how to approach it:
- Research Scholarship Opportunities: Look for scholarships and grants offered by your target universities, government programs, and private organizations. There are many databases and websites, such as Scholarships.com, DAAD, and Fastweb, where you can filter scholarships based on your destination, study field, or background.
- Meet Application Deadlines: Many scholarships have deadlines months before the start of the academic year, so it’s important to plan ahead. Keep track of deadlines and requirements using a spreadsheet or a calendar to ensure you don’t miss any opportunities.
- Tailor Your Applications: Scholarship committees look for students who align with the values and goals of the scholarship program. Tailor each application to highlight why you’re a good fit, whether it’s your academic achievements, leadership experience, or commitment to a specific field of study.
Tip
Finnest can assist you in identifying scholarships and grants that match your profile, and guide you through the application process to improve your chances of securing funding. Even partial scholarships can significantly reduce the amount you need to borrow in loans, making a big difference in your overall financial burden.
Mistake 5: Failing to Prepare for Unexpected Costs
When preparing for your study abroad experience, it’s common to prioritize costs such as tuition, housing, and day-to-day living. However, numerous students overlook the possibility of unexpected expenses that may occur while they are overseas. If you’re not ready, unexpected expenses like medical emergencies, visa fees, and travel costs can cause financial difficulties.
Why It’s a Problem
If enough funds are not set aside for unexpected expenses, they can greatly impact your budget. In case of a medical emergency, flight changes, or visa issues, immediate payments may be needed. Without enough saved money, you might have to turn to high-interest credit cards or loans. These unexpected costs can rapidly increase, causing unnecessary financial strain.
Examples
- Medical Emergencies: Even with health insurance, some medical services may not be fully covered, or you may have to pay upfront before receiving reimbursement. For example, visiting a specialist or having an unexpected procedure can lead to out-of-pocket costs that weren’t part of your original budget.
- Travel Changes: Flights may get canceled or rescheduled due to unforeseen circumstances, requiring you to pay for last-minute travel arrangements, which are typically more expensive. Additionally, emergency trips back home can further strain your finances.
- Visa and Documentation Fees: Sometimes, visa applications or renewals may be faced with unexpected fees or delays that require additional documentation, adding to your costs. These could include costs for police clearance certificates, translations, or fast-tracked visa services.
How to Avoid It
The best way to mitigate the impact of unexpected expenses is to plan ahead and build flexibility into your budget. Here’s how you can do it:
- Create an Emergency Fund: Set aside an emergency fund that covers at least 3-6 months of living expenses. This fund should be easily accessible in case of emergencies but kept separate from your daily spending account to avoid dipping into it unnecessarily.
- Purchase Insurance: Additional to health insurance, consider getting travel insurance that covers trip cancellations, lost luggage, and flight changes. Some insurance policies even offer emergency medical evacuation in case of extreme health issues while abroad.
- Add a Contingency Buffer: When planning your budget, add a 10-15% buffer to meet unexpected costs. This buffer should be able to cover minor financial shocks without affecting your ability to pay for essential expenses like tuition and rent.
Tip
Make sure your emergency fund is located in a local bank account or in an easily accessible international account, so you can easily access funds. Finnest provides financial assistance for students wishing to study abroad and can help you build a comprehensive financial plan that accounts for potential emergencies.
Conclusion
Studying abroad is an amazing opportunity, but it should be initiated after careful financial planning to avoid unnecessary stress and complications. One should understand the common mistakes students make like underestimating living expenses, neglecting currency fluctuations, and relying heavily on loans. This is an important step to prepare yourself for a smooth and successful journey. By avoiding these pitfalls, you will not only save money but also be able to focus on your studies and fully enjoy your experience abroad.
The key to success is proactive planning to stay on top of your spending style. If you are someone who is interested in studying abroad, we prompt you to start early by researching costs, applying for scholarships, and setting realistic budgets that include emergency funds and account for unexpected costs. Undertaking these steps will minimize financial surprises and ensure that your study abroad experience remains promising and rewarding.
If you want customized advice or assistance with financial planning, from securing education loans to identifying scholarships, Finnest is here to help. With expert guidance, you can confidently navigate the financial aspects of studying abroad and make informed decisions that set you up for long-term success.
