Every year around this season, some 800,000 young adults in Britain finish higher education with most seeking to enter the workforce. Unfortunately, the present cohort is graduating into a cost-of-living crisis, with inflation still above 10 per cent and a graduate unemployment rate of 12 per cent.

For this new generation, the boring task of managing one’s finances early on has never been more important.

Even if the average graduate starting salary of £24,291 (about $30,600) sounds like peanuts, what actually hits your bank account each month is a different matter. It’s easy to underestimate the impact of income tax, national insurance, pension contributions and, of course, your student loan, which averages more than £45,000. Typically, almost £4,500 of this average salary will disappear even before one starts budgeting.

And it gets worse if you are clever. At this level of pay, you are earning too little to start paying off your undergraduate student loan, where the payment threshold is £27,295 under the most common “Plan 2” loans — although the amount owed will still compound at 6.9 per cent. However, if you have a postgraduate loan in addition to your undergraduate borrowing, the income threshold is significantly lower, with 6 per cent of gross earnings above £21,000 being deducted. Even on an average graduate salary, this represents an additional £197 a year.

Meanwhile, your auto-enrolment pension contributions are a carrot-and-stick affair. On the one hand, even at the minimum setting, your employer contributes 3 per cent of your salary and the Government chips in with another 1 per cent of tax relief. The stick is that this will cost you 4 per cent of your wages, unless you opt out.

With the cost-of-living crisis biting hard, an increasing number of young workers are forgoing the “free” contributions from their employers and the Government to avoid making their own. According to government data, the opt-out rate among newly enrolled employees has climbed to 10.4 per cent as of the latest report in August last year from 7.6 per cent in January 2020.

This scenario should be avoided if possible. But if making your auto-enrolment pension contributions pushes you into expensive debt, then opting out may be the lesser of two evils.

On to the subject of debt itself. With earnings falling in real terms, carelessness or bad luck with store and credit cards or pay-later lenders is apt to be very difficult to escape. Generally, any form of borrowing with an interest rate above the inflation rate is to be avoided if possible. It is usually much cheaper to arrange a personal loan than to borrow via means such as credit cards or an unarranged overdraft. Unhelpfully, interest rates are often dramatically lower if you borrow larger sums. And whatever the rate, borrowing is unsustainable if you are routinely spending more than you earn.

One reason for such a budget shortfall may be that your biggest single expense — rent — has been rising rapidly. Private sector rents have risen “only” 4.9 per cent over the past year, according to the Office for National Statistics, compared with the 6.6 per cent rise in average earnings, 7 per cent rise in social housing rents and a consumer price index of 10.1 per cent. But new tenants face much bigger increases on average than longstanding renters. According to Rightmove, the online property portal, the average asking rent for new tenancies has increased by 10.2 per cent in the 12 months to March.

The options to mitigate the rising cost of housing are limited and can be unappealing. Long-term tenancies may help ease future rental inflation, but are of little help to new renters now. As a result, many young adults have been taking a more direct approach: in the decade between the past two UK censuses, the number of adults living at home with their parents has increased by 14.7 per cent to five million. But those with parents within commuting distance of London enjoy an unfair advantage: they are able to access graduate starting salaries that are, on average, 18 per cent higher than in Britain as a whole.

For graduates on higher incomes, there is another twist as the cost of student borrowing starts to bite hard. A master’s graduate earning above £27,295 will be paying a marginal income tax rate that is 15 percentage points higher than a colleague on a similar salary without a student loan. For most, this graduate tax will never surpass the value of their student loan, so it’s best to forget about the outstanding balance and wait for any unpaid loan and interest to be written off after 30 years.

For the highest earners, though, it may be worth paying loans off before they compound uncontrollably. Simply chipping away at it is rarely cost-effective. Those unable to pay off the entirety of their borrowing might consider paying off their master’s loan in total first, as that will save 6% income tax on its own, whereas paying part of their larger undergraduate loan will save nothing at all, at least not immediately.

It is clear that budgeting is of vital importance for those starting their careers, and there are myriad apps and websites that can help. But budgeting can take you only so far. Many young graduates are now facing some complex financial decisions about loans and pensions which may have lifelong consequences. Just as well they’ve got degrees to help them out.

• Stuart Trow is cohost of Money, Money, Money on Switch Radio and author of The Bluffer’s Guide to Economics. Previously, he was a strategist at the European Bank for Reconstruction and Development