Your opinion on % split for cash & S+S ISA out of weekly wage?

JustAnotherSaver

My brother was asking me this recently & since i don't really have much of an idea & he doesn't have an account here, i'd ask those with more know-how than me....

* He turns 21 next month.
* He started paying into a S&S ISA with HL while he was 19 (7 months before his 20th).
* He gets paid a different amount each week as his hours aren't guaranteed.
* He pays just shy of £40pw board money, so approx £160pm.
* His union fees are £12.50per month
* His only other real bill due to living at home is his fuel bill (young lad so does a lot of driving about).

Anyway, he currently gets anything from £300pw to £365pw (approx). For a while now it's generally been £330-£360pw marker.

He pays £80pw into his cash ISA & £20pw into his S&S ISA.

So he was just wondering whether this ratio was fair, whether either should go down so the other goes up (namely cash ISA down) or whether they should both increase. The one he's really wondering about is the S&S ISA - whether he's paying a fair % of his weekly wage into it.

TIA.

bowlhead99

I think 5-6% in the investment ISA as he's currently doing is not too bad - certainly better than many his age. Given S&S can go up and down he shouldn't commit a massive percentage into it, if (as I assume) he wants to leave home at some point and start paying a whole new set of expenses that need to be met in cash. Another fiver a week probably wouldn't hurt if he doesn't need it for his day to day living (and he probably doesn't, if he's on a variable income). Perhaps he could just put a bit more away every so often if he has a good month or quarter.

Is the 'lot of driving about' in his own car? Either way, you'd assume he'll be buying one at some point and again a S&S investment is not particularly suited to saving up for that - cash is better and he has plenty of capacity above the current 4000ish a year to put more into the cash ISA, if there's anything spare. At some point further down the line if his un-needed cash stash is getting too large, he can transfer it to S&S - but you can't transfer it the other way. So IMHO, if he is unsure, or likely to need the cash in the next 4-5 years, he should probably be looking at putting the spare money in the cash side rather than the investment side.

I presume he doesn't have a pension that his work would pay into? If he doesn't at the moment, but one is available to him, it might be worth putting a little bit into that in order to get the free cash, rather than ignoring it and putting more into the S&S.

Generally though, 30% of your take-home pay going into savings and investments is no bad thing. But obviously he's getting room and board for lower than real-world market rates (most people spend a LOT more than 10% of their takehome wages on rent and bills and food), so you would expect he would be able to put away more than the average person each week.

Whether he chooses to save less now and have more fun now or save more now and have more options later, is up to him but clearly it will make a difference to his situation further down the line if he can afford to save more. I'd look at trying to max the cash ISA by contributing 100-110 a week into it and maybe no more than a fiver or tenner a week extra into S&S, if circumstances allow and the cash ISA is already on course to be maxed.

JustAnotherSaver

Thanks.

There is no pension with his work. I should've pointed out that this is the sole purpose of the S&S ISA route - it's his retirement fund. It's not even to go towards a house deposit when that time comes, it's solely his retirement plan. He went the S&S ISA route as opposed to the pension route as i saw an IFA myself personally & that is what i was advised & my brothers situation is pretty much identical to mine. Rather than pay an IFA he decided to go for the S&S ISA option himself as the money could always get thrown in a pension at a later date if he opted for that.

He's wanting to save while he can (before a house purchase) so realises that when he moves out, he may not be able to contribute the same. At the same time, he didn't want to be in the position i am in - i started my retirement planning in my late 20s. He didn't/doesn't understand much about it but wanted to start ASAP after i told him about the problems of leaving it late/r in life.

His car is his own. It's a diesel, so not too bad. He probably does about 15-20k a year in miles at a guess, just tootling about here & there.

He was using the cash ISA for emergencies & big things - car insurance for example, or new car etc.

Problem is now - he has a girlfriend & by the sounds of it, she's a bit of a leech, so i'm a bit concerned this will end up running dry. That said, there's only one way he'll learn.

Archi_Bald

JustAnotherSaver wrote: »

He's wanting to save while he can (before a house purchase)

How is he funding the house purchase if all his savings go into the S&S ISA earmarked as his retirement funds?

JustAnotherSaver

Archi_Bald wrote: »

How is he funding the house purchase if all his savings go into the S&S ISA earmarked as his retirement funds?

Cash ISA.

That's the way i've done it. As said, i didn't get into retirement planning until my late 20s. I would put money into my cash ISA 'as & when' which built over the years. Only around 2009 or so did i start learning about rates & hunting the best rates. This was after 1) we had our hours docked & 2) i had £10k in a current account which earned a few £100 every year. One year it earned £0 & i looked into why. From then on i learned about saving properly.

The basis was still the same - i'd put money aside into my ISA. Im now 30, i've been on £14k-£18k gross my working life & i have £41k saved up. Could've been better, but still not bad.

So he could do the same, or similar.

If i had been paying into a S&S ISA, i wouldn't have £41k, but i'd still have a decent amount based on the timeframe that had passed & my salary.

Yes that is me & he is his own, but i'm just saying - it can be done on a wage that isn't 'great'.



<EDIT> i just noticed you said "all" of his savings. You can't have read my OP then.</EDIT>

Archi_Bald

JustAnotherSaver wrote: »

<EDIT> i just noticed you said "all" of his savings. You can't have read my OP then.</EDIT>

Apologies, you are right, I didn't read the OP properly. Sorry about superfluous Q.:o

JustAnotherSaver

No problem. My edit says i didn't read yours properly either so we're even