Saving, Investing... Starting early

Primetime_2

This is my First post on here so i'll quickly introduce myself... Ben Ainley, 19 and i live in Southport.

Recently my grandpa died and he was a great believer in saving etc etc. it's made me realise, as well as family members have, about the importance of saving and even investing at an early age because of the reduced risk.

currently i work full time on minimum wage. i have an ISA with barclays currently with no money in whatsoever. that's because i stripped it clean whenever i needed money.
i'm going to put around £200 in this month to get myself started again and was going to request a meeting with someone from barclays to discuss investing some of my money into shares/bonds etc. im not all clued up on this, hence why i registered on this forum as it seems great, and seems like plenty of people know what they're talking about.

so i'm all ears to any advice!

thanks everybody, Ben

Eponym

Hi Ben, sorry about your grandfather but congratulations on taking such as responsible view.

I'm sure there will be plenty of people along with advice but the first thing is that it's not a good idea (generally speaking) to invest through banks. Their products are usually not very good!

Also, it is very risky to start investing before you have some savings built up - I assume from your post that you don't have much in the way of savings at the moment. It's best to save at least three months wages (preferably 6) in an instant access account so you are covered if you lose your job.

Primetime_2

Eponym, couldn't have wished for a warmer welcome than that. thank you.

so it should all be done independently? you're right, currently i have around £600.00 in my debit account. i get paid every 2 weeks on average £350.00. i think i just need to sit down and see how much i can afford to put away into savings incase of becoming unemployed.

how much should i be looking at to be investing?

will reply when i return from work!

thanks again, ben

dtsazza

I'd like to second Eponym, both on the mixed contratulations and commisserations, and also on the recommendation to first build up a safety net. This doesn't just cover unemployment but also unexpected car repairs/boiler explosions/etc.

Having a few months' living expenses available should the worst happen is a great feeling, and the best part is that you don't really give anything up for it - while you're not using the money, you're still able to gain interest on it. You'd need to have it in an instant-access account, so that you could get access to it when you needed it; keeping it in an ISA would be ideal, since ideally you won't have to withdraw it. (ISAs aren't usually good for savings where you regularly deposit and withdraw due to their yearly allowance limits; this case is fine because you don't expect many withdrawals.)

Having an ISA yourself is a good start, since not paying tax on the money means that you effectively get 25% more interest than you would in an equivalent "normal" savings account. Bear in mind that (again, as Eponym pointed out) banks rarely have any respect for loyalty, and you should treat them the same way. Barclay's current instant-access ISA is well below the best on the market (2% interest instead of 3%) - and chances are that your existing one is now paying something pitiful like 0.1%, after an introductory rate expired. Double-check what rate you're currently getting, and if it's below 3% consider switching to one of the better-paying cash ISAs shown on this MSE article.


Beyond that it would be helpful to think about what it is you're saving for, and importantly what lengths of time are involved. You want instant-access for your emergency fund, as well as other short-term savings (such as savings for a holiday or presents later in the year). For intermediate-term savings, such as saving up for a new car or perhaps a house deposits, you can get higher interest rates by locking your money away for a bit longer. For example, if you put money away for three years you can get 4.25% - which is a nice bonus if you know that you won't be able to afford the car/house within that time anyway.

And then if you're looking at retirement, or saving for a child's university (not right now I suspect!) or other goals which are a decade or more away, investing in non-cash instruments starts to make more sense. In the long-run, the stock market has almost always outstripped cash savings; however it does this with a great deal of volatility (prices going up and down). In other words, if you put your money into stocks, there's a reasonable chance it would be worth less in two years - not ideal if you'd counted on that money to buy a car. However, in twenty years it will almost certainly be worth a lot more than if you'd held it in cash, as the longer period balances out falls with bigger rises. So stock market investments are bad for the short-term but ideal for the longer-term (an oft-quoted rule of thumb is five years minimum, with longer generally being better).

Also note that unlike cash savings, your initial money isn't guaranteed with stocks. You could end up with less than you started with, or even lose all of it (though that's vanishingly unlikely unless you put all of your money in a single company - don't). It's a different beast altogether; you're trading away certainty in exchange for higher average returns. Just be aware of that when you're assessing what to do with the money - historically the stock market has returned 9% a year, but that doesn't necessarily mean it will do in future (and it definitely doesn't mean it'll do that next year, whereas a savings account that paid 9% would pay 9%.)


I'll stop here as this is already getting quite long. The summary is:

• Don't assume that your bank will offer good products; compare the market.
• Think about what you're saving for, and put the money in an appropriate product
• Don't be taken in by marketing hype - understand what it is a product does and pays.

And of course if you have more questions about specific accounts/circumstances (as I expect you will), please do post them back here so people can give you detailed advice about that one thing.

silver_4444_uk

Hi Ben, I'm sorry to hear your sad news.

I also think that you are very mature in your outlook towards learning about saving and investing at such an early age.

I agree with Eponym's reply above completely.

Do not invest through financial advisers working for banks. Their financial advisers will usually only peddle the bank's products, which are not necessarily the best products for you. They are also usually paid by commission for selling their own products.

An emergency savings fund ( of 3-6 months savings ) in a high interest (hopefully)easily accessible account is also a great idea, especially in the present economic turmoil. This would be my first priority before I look at any investing.

I would also start to look at increasing my knowledge of saving and investing before either going to see an Independent Financial Advisor or investing myself. There are plenty of people out there who will be very keen to help relieve you of your money. So take your time !
2 Books that I can recommend for starters are
1) "Your Money or Your Life : A practical guide to solving your financial problems and affording a life you'll love " by Alvin Hall
2) "Smarter Investing- Simpler Decisions for better results" by Tim Hale


The former is a good "starter" book and the latter goes into investing in more detail.

Rgds.

Silver

atush

Sorry about your Grandpa, but great that he inspires you still.

You are trying to run a bit before you elarn to walk.

Your first area to address is spendingk, not saving (as you have managed to spend what you have saved already). So go to the budgeting board and Post a Statement of affaris with all your incomings and outgoings. Get advice about where you can lower expedtiure (utilities, phone, insurance etc) then make a spending diary. Wrtite down ever penny you soend for 1 quid in a parking meter, to a coffee from Starbucks. Eliminate what you don't need.

Then, as said above, save a min of 3-6 months salary in cash. If your employer has a pension, join it. Look to earn more- go for a promotion, look for better paying work.

Then it is time to save into investments so then come back here and ask us ;-)

Primetime_2

i didnt expect to see this returning from work! dtsazza, silver and atush; a huge thank you for the support and advice! a few good reads there that have given me a massive boost of confidence.

i was very apprehensive joining here wondering what sort of reaction id get, bloody happy i did!

i will certainly take a look at those books and probably buy both and have a damn good read. i understand i was a bit ahead of myself, but i didnt know where to start, i suppose like many new things people do but hey ho.

dtsazza, i understand the investing side etc is a longer term solution, hence why im interested in it as you said it will come in very handy in the future when i suddenly realise i have some money i probably would have forgotten about!

atush, a great idea on the diary thing. that will put it into perspective as i know theres a lot i can change about my lifestyle to make it cheaper to go from day to day and save that extra bit of money.

when it comes to spending, i have always been sensible, but when i get round to leaving money in the bank, something will pop up! usually with my car, but im trying to counter that by learning how to do things myself to save on labour costs at the garage.

i know i have plenty more to say but im bloody tired. and yes, i decided today i will be looking for a better paid job (although im training to be an electrician, its much harder to find an apprenticeship/job than it is finding say a high street job with a better wage that minimum wage.)

thanks again for the support over the death of my grandpa. much appreciated.

Ben

Eponym

You've had some great responses there and in far more detail than I was able to go into. Take all that on board!

As far as saving and investing at the same time goes, let me give myself as an example (although bear in mind this is only what I do and what I am comfortable with, others may have different views about how sensible or otherwise my approach is!)

I am a bit older than you, nearly 25, working full time in a fairly low paid job (just got a promotion so should be just over £18k now) and living at home to save money for a house deposit.

I currently have £17600 saved in cash ISAs which is the bulk of my deposit savings. I can access this immediately if I should need to, but the situation would have to be dire for that! I have another £2000 or so in a regular saver which is also for the deposit. Then I keep a hundred or so in my current account after I've paid all my bills (credit card - which I pay off in full each month, phone, gym, rent to my parents). The left-over goes into an instant access savings account from where I transfer money back to my current account if I find myself short.

A few years ago I opened stocks and shares ISAs with a view to long-term investments, probably for retirement. I recently transferred these to Hargreaves Lansdown, which is a company a lot of people on here like. They invest your money with the investment houses for you but acting on your instructions. I only have one fund at the moment which I started with a £1000 lump sum (the minimum) but from this month, giving the extra pay I will be getting, I am starting a new fund as well with a £50 a month investment. Most companies like Hargreaves Lansdown will let you invest monthly for a small sum, much smaller than the lump sum figure and this also allows you to smooth out the ups and downs of the market (ie. your £50 buys more when the fund price is low and less when it is high) so you don't have to worry about timing the market.

I could afford to invest more than this but my primary focus is saving for my house deposit so that is where the bulk of my money is going.

I reiterate, though, that you should not think about investing until you have a decent amount of cash built up in an instant access account. I've posted all of that for you to have a think about in the meantime. You also need to consider what savings goals you might have. Do you want a house one day? Do you want to travel a bit, or buy a car? Maybe you just want a rainy day fund. Have a think about your goals and start setting money aside for that once your emergency fund is up and running.

I hope that all makes sense but I'd be happy to explain more if it doesn't!

atush

Epon,

good 2 prong approach. And investing smaller sums monthly is a good idea in these current volatile markets to take advantage of Pound Cost averaging.

Step one, check your spending and reduce
step 2, save up 3-6 monts spending/salary in cash
step 3 invest elsewhere such as equities

And step 0, join a pension shceme if one is offered and keep to your apprenticeship even at low pay until you qualify unless you can get a better one.

Primetime_2

epon, i couldnt thank you more than enough. been very busy recently hence why i am only replying now!

you have a lot of money saved, so that really gives me a bench mark. you say you're saving for a house deposit... can you not usually save around £16,000 and go for it? or is it your choice to save more?

i do have goals, yes, ideally just want to save money and not have to worry about it in the future!

atush, ive already figured out a few things i can save on and will be putting them into action very soon!

epon, it sounds very complicated in terms of having different accounts with money going in and out and credit cards etc. do i start with a credit card at some point (i know i would pay it off straight away) to improve my credit rating? i think i will be going to the bank sometime next week to put £200.00 to kick start my saving!

Primetime_2

quick question, how do i locate my own posts so i dont have to scroll through pages to find it ?

thanks