Starting from the beginning!

megan01

So I am 22 years old, and in the last year of a law degree. I have decided to not waste time and money pursuing becoming a solicitor as the market is already saturated with graduates I don't have a chance, therefore I am looking at other graduate jobs.

For now, I have £4000 in savings, and by April next year I should have £7000. I will be living with my parents until I can save up enough to be able to buy somewhere without too big a mortgage. In return I am currently, and will be in the future helping care for them both as they go through their major operations. They are also thinking about in the future, downsizing to a bungalow and adding my name to it, and putting the rest of the money from the house we are currently in, into a small property and also putting my name into that.

I am now thinking about when I get a job, what I need to do with my money. So far I have come up with:

- Savings for a deposit
- Savings for a car
- Savings for emergencies (ie if I lost my job, something broke down in the house, car broke down) Do these all need seperate savings accounts?
- Pension with work
- Private pension
- General savings

Is there anything else that I am missing? I really want to be organised and on the ball with things, as I have a feeling once I get a job and my parents start having their operations, things will be haywire. Thankyou to anyone who helps me !

calypso_rhapsody

Looks a pretty good list to me - and no you do not need to keep your savings pots separate - though many do. Depends how disciplined you are - if you feel you are less likely to 'raid' the deposit savings if it is separate then it could be a good idea.

The next stage is to think about where to save .. Regular savings accounts are probably the best starting point, then transfer into a cash ISA when the account closes at the end of the year. At some stage you may want to think about S&S but that is only for longer terms savings (5yrs +) so your pension savings would be the only category for that at this time i would think.

You may not need a private pension as well as a work one if your work pension allows extra contributions - many do. But you may decide to prioritise the deposit savings over extra pension initially?

Take care with having two properties in the same names - only one will qualify for principal private residence relief for CGT. If you might live in the other property at some time then i would be better to put that in your name. The rules are complicated - do some research (i would guess that if you search the house-related parts of this forum you may find something, otherwise HMRC's website.)

Oh and don't forget to spend a bit of your money - if you are working and caring for two parents you will need a bit of relaxation!!

megan01

calypso_rhapsody wrote: »

Looks a pretty good list to me - and no you do not need to keep your savings pots separate - though many do. Depends how disciplined you are - if you feel you are less likely to 'raid' the deposit savings if it is separate then it could be a good idea.

The next stage is to think about where to save .. Regular savings accounts are probably the best starting point, then transfer into a cash ISA when the account closes at the end of the year. At some stage you may want to think about S&S but that is only for longer terms savings (5yrs +) so your pension savings would be the only category for that at this time i would think.

You may not need a private pension as well as a work one if your work pension allows extra contributions - many do. But you may decide to prioritise the deposit savings over extra pension initially?

Take care with having two properties in the same names - only one will qualify for principal private residence relief for CGT. If you might live in the other property at some time then i would be better to put that in your name. The rules are complicated - do some research (i would guess that if you search the house-related parts of this forum you may find something, otherwise HMRC's website.)

Oh and don't forget to spend a bit of your money - if you are working and caring for two parents you will need a bit of relaxation!!

I think having seperate savings accounts would be a good idea for me so I know exactly how much I have for certain things.

What is S&S ? Sorry I have no idea!

The reason I added a private pension in there is firstly, because its what my parents have additionally, my dad because he was self employed and my mum because she wants something supplementary to the NHS' pension. Secondly, I am a big saver, and would rather save save save so that I can retire earlier than 68.

And, thank you for pointing out the principal private residence relief for CGT, I have no idea what that is and I need to look it up!

atush

First of all congrats! My son just started his first year at Law school.

Second, great list. You don't need to have seperate pots, but do think about rates and tax. If you are a taxpayer, start slamming some of the cash you have now, and the cash you accumulate into Cash Isas. This means, as long as you don't spend it, it remains tax free each year. No need to pay more tax than you need to. Keep some pots sperate if you like, but fill your Cash Isa allowance first with your emergency then car and deposit funds.

Pension. Get one as soon as you get a job. If your work has one, and contributes, start there. As long as you are putting in a reasonable amt between the 2 of you, you don't need a second private one at this time. I suggest, at age 22, a min of 11% between you and your employer.

S&S means stocks and shares- ie equity inveatments. Very very important for the long term, although you will get exposure thru your pension contibs. Equities outperform cash over long periods, even in this last ten vears of mark volatility. Once you have built up enough cash for emergencies, then look to S&S ISAs along side cash savings.

PPRR means the house you live in, you don't have to pay Capital Gains tax (CGT) on any profits when you sell it.

Back to my first point, do sell on your used law books if you no longer need them. I am finding used law books scarce when buying for my son. Try looking them up and listing them on Amazon.

Any

I agree you don't need to have that many separate savings accounts. I think long term it might cause more pain then good - monitoring them all and having passwords for them all (unless your bank allows you to view them all at the same time - at which point you will be getting little or no interest, as for good rates you need to keep switching!).

To monitor how much you saved for what can be easily done on 1 simple spreadsheet, listing all these and adding amount to it each month.

I also think that especially for young person you have listed all sorts and I cannot see you having any money left for life.

I personally would forgo the private pension for now, in view of getting onto the housing ladder faster - that in it's own way is beginning of your pension pot!!

I am not saying do not bother with private pension, I am saying do not put it ahead of some other more immediate pressing matters - once you put money into pension you can NEVER withdraw them (until you want to take out pension) and I think I would rather live in a house that I have interest in than know I have couple grand in pension that might come handy in 35 years time, if I even live that long.

I personally now save for my own private pension - but I save in funds within my Stock & Shares ISA (that is taht S&S mentioned), where I can pick the funds I want to invest in myself rather then let pension company pick it for me, have access to it in case I need to (I don't know - I might find out I haven't got to pension age to live) and interest and gains will be tax free because it is in an ISA.
Though you will loose the income tax that pensions return to you..

Prioritise for now, get your head round what is available and only get into a product that you have full believe in and understanding off.

Otherwise you might get stuck with product not serving a purpose and loose money!

atush

Saving into an isa is all well and good, but you don't get tax relief so it would have to make over 25% int he first year just to catch up with the pension contribs. Not to mention what happens to ISas when you fall on hard times/get made redundant/get sick as you would have to spend most of it before you qualified for means tested benefits. Pensions and ISAs should go hand in hand, not one or the other.

Not joining a company pension when the employer pays in is just plain STUPID as you are in effect flushing free money down the swanny. So do join one if one is offered by your employer.

innovate

atush wrote: »

Saving into an isa is all well and good, but you don't get tax relief

Sorry if I missed something, atush - who doesn't get tax relief for savings in an ISA?

atush wrote: »

Not joining a company pension when the employer pays in is just plain STUPID as you are in effect flushing free money down the swanny. So do join one if one is offered by your employer.

I agree wholeheartedly

Nessie23

Hi, first of all well done for thinking ahead, here go a few suggestions:

a) An instant savings account with some easy access cash for emergencies (I would suggest you build up to two months salary to begin with)
b) A cash ISA
c) A regular saver (which can pay up to 8%)

I would start saving roughly in that order. Although the ISAs might not have and immediate tax benefit, once you start earning (and pay tax on interest) you will already have some money stashed away in a tax free account. Remember that you can only contribute a limited amount to an ISA each year.

Hope this helps,
Nessie

grey_gym_sock

if when you put money into a pension, you get employer contributions for "free", it's definitely worth doing.

if not, i.e. if it's just your contributions + the tax relief that goes into the pension, it's less clear-cut. and the tax relief is worth more for higher rate taxpayers, so there is less point in doing it if you're only paying basic rate. and if you become a higher rate payer later on, that could be the point to start (or increase) contributions.

S&S ISAs can be a good alternative to pensions. you can keep them as long as you like (under current laws, at least). or you can take all or part of the money out at any time. unlike pensions, which you can only take anything out of at age 55 (this has recently increased from 50; i wouldn't be surprised if it's eventually increased further). this is a double-edged sword. with an ISA, you have control of your money, but as a result you can lose entitlement to means-tested benefits, and you are free to foolishly spend it all, etc.

atush wrote: »

Saving into an isa is all well and good, but you don't get tax relief so it would have to make over 25% int he first year just to catch up with the pension contribs.

that's a preposterous way of ignoring half the picture. you can take your money out of an ISA without paying any tax. with a pension, you can (eventually) generally take out 25% tax free, but then the rest can only be paid out as taxable income. so you get tax relief up front, but you pay tax later (at an unknown rate - who knows what the tax system will be then?) on most of the pension fund.

atush

innovate wrote: »

Sorry if I missed something, atush - who doesn't get tax relief for savings in an ISA?

Yes, you missed the tax relief going into the pension. Int hat you can buy 100 quids worth of the same assets as in your ISA for 80 quid.

Yes, ISAs give you tax relief (as do pensions while accruing) on interst paid but that was not what I am referring to.

atush

Quote:
Originally Posted by atush
Saving into an isa is all well and good, but you don't get tax relief so it would have to make over 25% int he first year just to catch up with the pension contribs.

Greygymsock:


that's a preposterous way of ignoring half the picture. you can take your money out of an ISA without paying any tax.

You are just as preposterous ignoring half the pension/isa debate.

Just the other day we had someone here bemoaning he had made ZERO private pension provision in favor of 100% ISAs. and now faces redundancy and will have to spend most of that ISA provision as he cannot receive means tested benefits until he does so.

Not to mention you can lose ISas to creditors whereas pensions are mostly safe from that.

I am not saying dont save into ISAs of whatever kind. I am saying don't put 100% into them, as they do have drawbacks. Pensions and ISAs should be two parts of a 3/4 prong long term strategy.