Lost in the woods, hoping for advice

lost_in_the_woods

Hi guys and gals …. medium term (occasional) reader, 1st time poster here.

I’m looking to be steered in the right direction. My aim is to save money, probably to buy a house in the future (over 4 years time) but if you think I’m focusing in the wrong area please advise.

I suppose to help me you need to know a few details about my situation…..
Single male with no dependants, 22 years old, graduated this summer and started my job at the beginning of September, earn £32k a year (approx £2k a month after tax, pension and student loan payments), have no debt (other than student loans at 9% of what I earn over £15k), I have no savings, I have access to £2700 interest free overdraft until June/July (but I’m currently in the black), my only regular outgoings are rent (£600 a month) and bills/council tax (approx £200 a month).

Currently my plan is to use an instant access savings account (probably an internet only account to maximise interest rates) and try to maximise my ISA allowance before this tax year ends. If I don’t get quite up to the ISA allowance (which could be likely since I currently have no savings at all) should I use my interest free overdraft to reach the limit? And what should I be looking for when selecting where to have my 1st ISA? Purely the interest rate it offers or other criteria as well?

Or should I be looking to save in another way (or even invest)?

Thanks in advance for what I am sure is going to be great advice.

MyLastFiver

For a four-year time span, you should not consider investing. Cash ISA is the way ahead. If your budget is accurate then you should be able to save approx £1000 per month. Ifso, you will save more than double your cash ISA limit over a year. You could certainly put your overdraft into an ISA in order to start earninginterest straight away.

You are lucky in that you have a good salary for your age and a good attitude to money. Good luck - you'll go far!

vic_sf49

Whatever spare cash you have, I would put into an ISA in the first instance. I'm not sure if it's just the way I'm reading part of your post, but you don't need to have the full amount saved up before you put the money into ISA. (Apologies if I'm teaching you to suck eggs on that front.) The sooner the money's in the ISA, the sooner it's earning tax free interest.

As for which one to chose, yes there are other things to consider besides interest rates. The main one beings, if you opened it with a smaller balance, can you add extra funds to it. Also, do you have to lock your money away for 2, 3, or 4 years, or do they have any associated fees like 'transfer out fees'.

Check out MSE's guide for some good ISA advice.

Another thing that sways my decision, is my past history with banks / building societies etc and ease of access to my account. Were they good, bad or indifferent, and can you deal with internet only access? Oooh, I've just spotted that you said you're happy with internet access, so that should widen your options a little. (I'm not going to offer my opinion of certain banks here, as this thread would rapidly digress and soon become a bun fight).

After your ISA is sorted out, it's time to become a savings account tart. Don't be afraid to open multiple accounts at different, or even at the same establishment.

And finally, as you'll need a current account for your wages, don't forget to make use of offers that require you to put 1k into a current account each month. It doesn't have to stay in there - you can send the same 1k around the houses if you take the time to set it up properly. The interest probably won't be as good on a current account, but there may be some useful benefits attached to the accounts, such as travel insurance or roadside car assistance.

If you want anything more advanced than that, I'm going to have to send you off to find an independant financial advisor......remember, most high street bank financial advisors, are only trying to flog you their bank's (not necessarily competitve) products.

Happy banking!

lost_in_the_woods

Cheers guys

Yes the figures are correct and I am fully aware that I have a very good job, with good benefits (I almost said lucky to have the job but with the hard work I’ve put in over the years that would be incorrect, anyone who has studied engineering would agree that luck doesn’t come into it, also I’ve worked over 163.5 hours in the last 2 weeks).

Although you claim I could save £1k a month that would require me to live off £50 a week which I don’t plan on even trying as I want to enjoy myself (holidays, nights out, trips to see friends/family, clothes etc) also I’m likely to be spending £100+ a month on train travel (on one trip to see my family).

No, I wasn’t sure if I could drip feed money into the ISA or if I had to put it all in at once, so thanks for clearing that up.

I do have a current account but I plan on opening an account that rewards me for putting my salary into it as soon as I know I have enough of a cushion to never need my interest free overdraft again (which is likely to be after the 1st or 2nd pay check of the new financial year, as I am likely to be using some of my overdraft to max out my ISA).

So next financial year I will max out my cash ISA but then what should I put my money into (the 4 year time frame to require the money is a bit ambitious, 5-7 years is much more likely)?

Again thanks for the help and recommendations.

david78

You need to draw up a budget and see how much of the £2000 you can realistically afford to save. Have a look at the advice and BudgetBrain/Spreadsheet tools on this site and read up on what others are doing to find ways of saving.

You can probably pay a large chunk of your overdraft into a cash ISA straight away, then setup a regular savings plan into an instant access account. Next year you can then pay off the overdraft using money in the instant access account. You could then keep the regular savings going but pay into a cash ISA instead.

It will take planning and care to live with a negative balance on your account, but it is possible. A budget is essential.

Welcome to the MSE forums and good luck.

guitarman001

Jesus, I graduated nearer 5 years ago (engineering) and still only earn £30k!! What is it you do?

guitarman001

Contrary to the usual wisdom on here.. I just don't know about ISAs. Used to pay into them but it's really not worth it anymore IMO. Returns are paltry! I'd overpay on housing in the first instance whilst also keeping aside money in a higher-earning saver account.

lost_in_the_woods

I am renting so over paying on housing, if i understand what you are saying (over paying mortgage), isnt possible.

I studied mechanical engineering and have a job in the oil (drilling) industry.

atush

Any money earning interest you will pay tax on, so it is always wise to put it into an ISA. The interest isn't 'paltry' if you keep abreast of the best offers. This could involve effort on your part moving them each year when the 'bonus' rates drop off but isn't really that hard.

If you can't save 1000, what can you? At least 500 amybe up to 800? Whatever figure you decide whack it in there after payday. You could even vary it monthly.

Next year you will be able to save more than the limit, so you can save th excess in a regular saver acct, and easy access line acct, or even start very small investing in equties. Either thru a S&S isa, or thru an investment trust savings plan. Normally I would agree that saving for less than 5 years should mean cash accts, but if you are saving 50-100 a month into a plan such as an inv trust, you will counter current market volatility thru pound cost averging buying mroe shares/units when prices fall. In your case of having a high starting salary and large amts of savings each month you can afford to invest 50-100 each month this way. The ones I use have not lost me money this last 5 years and given the markets performance during this time that is a feat in and of itself ;-)

guitarman001

lost_in_the_woods wrote: »

I am renting so over paying on housing, if i understand what you are saying (over paying mortgage), isnt possible.

I studied mechanical engineering and have a job in the oil (drilling) industry.

Thanks for the reply - makes sense!
I wouldn't be worried about housing - prices are coming down gradually so I think you'll be better off by waiting on that one.

darkpool

guitarman001 wrote: »

Jesus, I graduated nearer 5 years ago (engineering) and still only earn £30k!! What is it you do?

i'm a civil engineer. if you fancy doubling yoiur salary have a look at the middle east or australia.