Saving for the future - advice

Evening all.

I've come to a point in my life where I need to consider saving for the future. I finished uni a year ago and have been in my job for around a year and a half. Within the next 6 months or so the gf and I will hopefully be getting a house together.

One of the things we've had to consider is how much money to save and how to save.

Bit of background;
Both 24. Joint income is 33k (17.5 + 15.5k), will hopefully go up a bit but doubt we'll ever be earning much more than 30k each. Mortgage will be ~150k over 25 years, repayments of around 800p/m. Estimated 'free' money after normal monthly expenditure will be 300-400 between us (hard to know exactly as we're FTB so have never budgeted before). GF has a pension scheme at work which is ~4% (£75p/m). My work offer no kind of pension scheme so I have nothing.

There's various things we'd need to save for:
- Rainy day fund; luxury items, clothes, holidays etc
- Wedding fund
- Kids
- Pension (possibly an additional one for the gf and definitely something for me)

So obviously some of these are short term things I will may need access to fairly quickly (rainy day fund), whereas some I wont want for another 40 odd years (pension).

What are the options I have? I'm a bit naive when it comes to savings/pensions. I'm quite good with money and would be able to set money aside without pinching from it if it was easily accessible.

What kind of options are there available to me? The obvious would be an ISA or personal pensions scheme, but I have no idea how these work. :o Could anyone point me in the direction of a simpletons guide to anything that maybe useful to me? I've had a look around here but a lot of the stuff uses acronyms and terminology that I've not come across.

Thanks for any help.
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Replies

  • LokoloLokolo Forumite
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    Your work will have to offer a pension scheme in a number of years, and contribute to it.

    As a "estimate", you should put half your age as a %. So you should aim for around 12% in your pension. However, this really is very simple guide. You can estimate how much you want from your pension here:

    http://www.h-l.co.uk/pensions/interactive-calculators/pension-calculator

    It's best to start as soon as possible as you won't miss the money later on.

    You could start off with a stakeholder pension, or you can go see an IFA who would be able to help you.

    ----

    Rainy day fund, ideally you want 6 months salary worth.
  • pledgeXpledgeX Forumite
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    I just checked my contract and they do operate a stakeholder pension scheme, but they don't contribute to it so it would only be what I pay in as far as I'm aware.

    If they don't contribute, then I imagine it would just be easier if I setup my own one, that way it wouldn't be tied to this company so I'd imagine it would be less faff when I came to moving to another company. I also know that no one else in the company (~20 people) uses this pension so I would guess that it would be pain to get up and running as well as this place isn't the best when it comes to paperwork.

    Sorry this has taken a turn towards pensions....

    Thanks for the other advice lokolo
  • ed89ed89 Forumite
    109 Posts
    if buying a house is priority, a deposit is the first thing you should be thinking about.

    Above £20k for starters!
  • pledgeXpledgeX Forumite
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    Deposit is all saved up and ready to go :)

    That's one of the options I thought about, putting the vast majority of my savings into overpaying the mortgage, only putting a smidge aside (mostly for short term things, rather than long term, i.e. pension), until it's all paid off then I can pay a shed-load into a pension when I'm mortgage free in later life.

    Not really gone through the maths to see if this is a viable option though, and there's probably other pitfalls that I haven't considered. I'd have to be very strict as when it comes to moving house as I'd have to factor this in. I'd imagine it would save me a shed load in interest though. Wouldn't leave me much time left when I've repaid in 25 years though!
  • ed89ed89 Forumite
    109 Posts
    Well done :)

    Not sure if this is any benefit to you, but this is how I have split up my income. (I'm 21)

    Rent and bills - 30%
    ISA Savings (for deposit) - 30%
    S&S Isa for long term - 5%
    Emergency fund - 5%
    Pension - 8%

    The other 22% is spent on groceries, going out etc.
  • ed89ed89 Forumite
    109 Posts
    PS. Do not think it is a good idea to put off pension until you are mortgage free. Read up about compound interest :)
  • pledgeXpledgeX Forumite
    527 Posts
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    ed89 wrote: »
    Well done :)

    Not sure if this is any benefit to you, but this is how I have split up my income. (I'm 21)

    Rent and bills - 30%
    ISA Savings (for deposit) - 30%
    S&S Isa for long term - 5%
    Emergency fund - 5%
    Pension - 8%

    The other 22% is spent on groceries, going out etc.

    Impressive savings, wish I could get close to that!! Damn living in an expensive area!

    How much do you think that balance will change when you get a mortgage and have to pay all the associated bills? Or do you think it will be roughly the same?
  • Rob_192Rob_192 Forumite
    289 Posts
    pledgeX wrote: »
    one of the options I thought about, putting the vast majority of my savings into overpaying the mortgage, only putting a smidge aside (mostly for short term things, rather than long term, i.e. pension), until it's all paid off then I can pay a shed-load into a pension when I'm mortgage free in later life.

    Pledge

    Before you make any decisions to defer saving for a pension, have a read of this artical http://www.lovemoney.com/news/savings-investments-pensions/savings/1280/the-miracle-of-compounding

    It will be either very enlightening or very depressing depending on your point of view.

    R
  • pledgeXpledgeX Forumite
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    Thanks for the link Rob. Very interesting, and from the looks of it that's good news to me. Seems like a crazy amount of money can be saved by investing relatively small amounts, as long as you start early, which at 24, whilst not the earliest, still gives me plenty of time.

    To yield such high results seems to good to be true. The example states 9% return after charges. I'm guessing you would need to go for a quite a a high-risk product to get such returns no?

    Just from looking up NatWest's (just picked one at random) best fixed-rate ISA product looks to be around the 3.80% mark, which is obviously a massive difference in the long run.
  • edited 1 March 2011 at 8:41PM
    LokoloLokolo Forumite
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    edited 1 March 2011 at 8:41PM
    When investing for that period of time you would usually go for a higher risk investment.

    Higher risk investments usually have greater stags in return, so can go from -50% to +50% in a month or so. But, over the longterm they tend to bring greater returns (usually).

    What usually happens, people start off with the higher risk investments, then, as you get closer to retirement, you lower the risk.

    The link I gave you earlier lets you change the rate of return 5%/7%/9%.

    You wouldn't be using a savings product for a pension as they would not keep up with inflation a lot of the time.

    Also you mentioned earlier about you wouldn't use the stakeholder pension with your company. Your company will be using a pension provider (Scottish Windows, Provident etc.) to do everything for them, so you wouldn't be relying a lot on the company, they would have stuff for you to fill in etc. and send it to the pension provider. You can also transfer pensions.

    Sorry this has got a lot on pensions!


    I have already said about rainy day fund.


    You mentioned marraige - is this a prospect in the near future? Or is it a long way off?

    Same with kids.

    If they are a while away, I would start saving, but only a little amount, maybe £50 a month to start with, until it starts getting closer.
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