Savings Log of a 26yr old on low pay

MoneyWaster2007

bowlhead99 -

Well with the figures I quoted it would seem tight for affordability as you've seen, and to be honest if you are not planning on increasing the £15k or buying with a partner or friend you are not going to get a £95k mortgage because it would be over 6 times salary and nobody is really offering that at low LTVs.

I checked on the HSBC mortgage checker and that says I'd be offered £72k max LTV on a value of £100k, based on my income. So, it looks like they would offer a mortgage to me. If I were to do it the traditional way I'd need scrape together £28k. Which is a mammoth task, hence my interest in the help to buy scheme.

If that wouldn't work for you (and it wouldn't for most) then certainly meeting a girl is one option and I would hope at 28 you have plenty of years left of being enthusiastic about that sort of thing

Thanks! I was feeling old (and I'm actually 29 now but what's a year).

I was a FTB at 36 which gives you eight years to save a better deposit and still buy at the time I did, and there's nothing to say you have to race to buy one as early as I did. You can get a 25 year mortgage at 40 and still pay it off by retirement.

Thanks again! The way you've put it there, makes me feel a bit more relaxed about the whole thing. I was maybe getting a bit too impatient with things, but the fact that I'd still be ok to get a mortgage at 40 means I've still plenty of time to save. Time in which I may even get some windfalls, who knows...

By all means spend some of the money you have saved hard - your potential future wife might never meet you if you are sat at home shivering over a can of beans to get an extra pound into the pot that week. But don't give up on the idea of continually saving and one day having enough to buy a house, because once you stop thinking about or planning for the future you resign yourself to not having one (i.e. a future), which doesn't do you any good at all.

That image of me shivering over a can of beans is hilarious, thanks hahaha!! Savings train is full steam ahead..

When you say 'spend some of the money you have saved hard,' surely that would be counter-productive to the overall aim of saving, and would set me back somewhat?

Best thing to do is to up your income over the next few years which makes it easier to save, invest, borrow, pretty much everything really. Learn some new skills, take a course, something.

Hopefully, with the degree I'm doing, I may be able to up my income in the future, touch wood. Onwards and upwards. I have to take my hat off to you bowlhead99, that was a truly amazing reply. So many questions answered. Nice one!

lashie- thank you very much. It's nice to see someone new joining in on this mammoth thread . And I hope things are going well for you too?

mike88 -

Whether you can afford the mortgage repayments is a question only you can answer. On top of servicing the loan you will have a management charge of around £80 a month if you buy a flat and the usual Council Tax and Utility costs.

I don't think I can afford the payments, but will keep saving and see where it goes. I also wasn't aware of the additional £80 pm on top, which would be even harder to pay.

Thank you to all that contribute to this thread, if it weren't for you lot I don't know where I'd find the answers to my endless questions! Or the motivation to carry on. And I don't think I'd have got this far, either!

Eponym

Don't just look at HSBC. Different providers will offer different amounts; you may find another that would theoretically offer you more.

Of course, the affordability would still be a significant problem. (I sympathise with you on that, I'm looking to but and I'm a little concerned about it even though I earn a bit more than you and have a larger deposit. Rates are likely to increase significantly in the next 5-10 years and who knows if it will still be affordable then?)

lippy1923

I don't know if it still stands, but when I was looking to get my first mortgage 3 years ago, Lloyds were willing to offer me far more than any other provider (Not that it was necessarily a good thing as it would have been way over my head)

Keep on saving MW. You are still young and have plenty of years ahead of you to save and get a mortgage. No doubt by the time you are ready to commit to a mortgage, you will have found a lucky girl to help share the payments

MoneyWaster2007

Eponym -

Rates are likely to increase significantly in the next 5-10 years and who knows if it will still be affordable then?

And wages are not rising, if I remember correctly. My parents were faced with a bad situation in the last recession, re interest rates; they were forced to sell at a loss, at a time when people thought there was nothing safer than houses, and have rented ever since. Things like that make me think twice about trying to obtain a mortgage in the first place. Are you trying to go it alone with getting a mortgage?

lippy1923 -

Keep on saving MW. You are still young and have plenty of years ahead of you to save and get a mortgage.

Thanks, and hopefully by the time I have a deposit large enough, the monthly payments will be much more affordable. That's considering house prices don't boom during my savings period :eek:

On a different note, I am soon to be enrolled onto the automatic pension scheme. I have been quite against it as it would mean more money taken away from me each month, not to mention the fact that the value of the pension could decrease come retirement age, and in effect you are giving your money to someone to gamble with. I had originally planned not to have a pension, as I thought that I'd make more money by saving it on my own at a guaranteed rate of return. What do you think? Good thing or bad thing?

lippy1923

If you are getting free money from your employer and the tax relief of your own contribution, then I think it's a no-brainer really.

The younger you start the less you have to contribute each month. Go for it.

MoneyWaster2007

I agree it sounds good, but if for example it means I have to pay £50 pm, that will have a direct impact on how much I can save. I currently save £136.50 pm, which would then have to reduce to £86.50, meaning less than 10% of my wage. Or, I could try to save the same amount but adjust so that I manage with £50 less each month...

lippy1923

This is how I look at it.

Example- You put £100 contribution into your pension.
You save 20% TAX = £20
You save 10% NI = £10 (I don't know the NI % so someone correct me please)

So that £100 you have stashed away only really costs you £70.

And then hopefully your employer pays some. Mine matches my payments. So say they add £100. Thats £200 each month in your pension, costing you £70.

It will impact your personal savings but it's worth it.

MoneyWaster2007

It looks a great deal from the example you have provided, thanks. I think the first thing to do is to find out the exact details of it ie. cost pm etc. then see how that will affect my finances.

The younger you start the less you have to contribute each month.

That's a good point too. I don't want to be starting it at 40 and paying double the amount.

bowlhead99

Life is about balancing several different objectives. You get your wage, then what?

- save some of it for things that only happen once a year - an annual bill like car tax or an annual travelcard or something.

- save some of it for things that only happen once every few years - maybe a car.

- save some of it for things that only happen even less often - maybe buying property.

- pay yourself. You need money to live on now: some for essentials, some for fun to stop you going insane.

- pay your future self. In 35 years you will be on the scrap heap employment-wise, and your money will stop flowing unless you have made some pension provision. It will be tough to last the 35 years after that, if the pension provision is very small because you left it too long to start. With pensions you are trying to put a small fraction of your wage away now (age 30 to 65), to provide your entire wage later (65 to 100). Long term investment growth within the pension, and tax breaks, will help you do it.

You say you might prefer to "make more money by saving it on my own at a guaranteed rate of return". There is no such thing as a guaranteed rate of return, apart from a bank account with a fixed interest rate. Bank accounts can't be expected to pay more than inflation. So if you pay a tiny fraction of your salary into a bank account, in 35 years time it will have turned into more money but in real terms it is still a tiny fraction of your annual salary. You can't live off a tiny fraction of your salary. You need it to grow to be a larger fraction of your annual salary.

If the fraction of your wage that you put in now is 0%, then investment growth of 10% a year will still leave you with £0 in the pot. £0 is not very much to last you 35 years. If the company is going to give you free money alongside your own contributions, it is shortsighted to turn it down. It is like you are actually opting for them not to give you a payrise, money that they would have been happy to spend on you but instead spend on pensions for others and profits for themselves.

On these forums you get people from time to time asking what they should they focus on. The answer is you should keep juggling all the balls because if you drop one of them and don't bother to pick it up pretty quick, it will be detrimental to some part of your life.

There is no point buying a property which you might have to sell at a loss to give you cash to spend on the essentials during retirement.

There is no point having a huge pension pot and meanwhile going bankrupt several times and then once you get your hands on the pension you spend it clearing debts and paying rent to a landlord.

There is no point buying an expensive car and having to live out of it.

There is no point building up a huge savings pot for a property and pension at the expense of every last piece of enjoyment in your life today. We all sacrifice things to put more money aside - giving up smoking is a great example of something that's a win-win for your health and wallet. But if you give up everything, that's where I get the image of you shivering over a can of beans with the heat off, ignoring all contact with social groups to save that extra one pound for the week.

So it's all about balance. If you stand back and look at it carefully, maybe you'll agree that putting away some of the money you would have paid your current self to pay your future self, is not so ridiculous. Ideally the amount you put away (between you and your employer) is going to be several percent per year. 15% of your gross pay is a nice number to start with at your age - but you have several competing objectives at the moment and that probably isn't going to happen - putting away too much could destroy your ability to actually get through to retirement.

By all means, once you've got the maximum matching from the employer, don't put in any extra per month - for someone on your low income the tax breaks are not as valuable as the employer matching, and you do sacrifice flexibility because you can't start to get the cash out until 25 years down the line. But when you get a payrise further down the years, reconsider - because you are right in your comment above, that if you leave it to 40 or 50 to start you will need to be locking up a crazy amount of salary to play catch-up.

jem16

lippy1923 wrote: »

This is how I look at it.

Example- You put £100 contribution into your pension.
You save 20% TAX = £20
You save 10% NI = £10 (I don't know the NI % so someone correct me please)

Only salary sacrifice schemes will save on NI contributions. Most pension contributions don't save anything on NI.