Life advice please!

Db1989

Hi all

I am wondering if I could trouble everyone for some basic advice please? I am trying to work out how much money I should be saving each month from my net salary. As I have never had a job before, I'm sure you understand how difficult this is!

My circumstances: I am 25, and about to start my first job. I have no debts apart from student loans (no credit card, mortgage, monthly bills). I am single, and about to move into a rented apartment at about 600£ a month inclusive of all bills.

My net salary will be around £2000 per month. After rent that leaves £1400. But I still need to factor in food, living and petrol money (average use).

I guess what I am asking is for some people with more life experience than myself to give me some advice on what percentage of my monthly salary I should try and save! I don't spend irresponsibly, but would like to experience an increase in standard of living after finishing slumming it as a student for the past 6 years.

My first though was putting 250£ (12.5%) a month into an ISA. Is this too little/much?

Thanks

Archi_Bald

You need to first create a budget. It needs to contain regular and irregular spend. Include any bigger items you wish to have - e.g. car, holiday, house deposit. Think where you want to be in 5 years, in ten years. Also think about your retirement income - you need to start making provision for this now. You could use this as a template for starters: http://www.stoozing.com/calculator/soa.php

Once you know how much you would like to be able to spend, you can figure out how hard or otherwise you need to safe to achieve your goals. You probably have to go round this a few times and tweak it before you have your first budget. You also need to periodically review it, at least once a year. And you need to stick to it.

You should aim to build a cash emergency reserve that would allow you to live for 6-12 months without any salary. Do not put this emergency cash into an ISA because ISAs are paying such bad interest now that they are basically useless for short and medium term savings. Look for interest paying current accounts instead - the forum is full of information about them.

You should be thinking of putting the maximum you can afford into a workplace pension if your employer offers one. You can also put some money into an S&S ISA or a SIPP.

Don't look for suggestions for a percentage that you should safe - only you can decided what you want and what you can afford.

delmar39

You've identified 25% of your salary so I'm presuming you can afford this? What are you saving for? If saving £250 per month then you'll have £3k in 12 months - is this your cash emergency reserve, deposit for a house or something else? This website has been mentioned on here a few times, I found it really useful even though I've been saving/budgeting for a few years now. http://www.youneedabudget.com/method

You could divide your savings accordingly i.e. a certain amount towards your emergency fund, stocks and shares ISA for longer term investment, house deposit etc - just examples, depending on what your priorities are over what period. So, if you want to focus on building up an emergency fund, then stick the £250 into a high interest current account until you reach the limit on which they pay interest (£2k on each TSB Classic account for e.g. or £2.5k Nationwide Flex Direct).

My savings headings are below if this helps:

-Planned monthly spending.
-Savings for my little un.
-Holiday fund.
-Emergency fund.
-Stocks and Shares ISA.
-Mortgage overpayment.

Everyone's different, this works for me, just gives you an idea.

PeacefulWaters

Set money aside for:

Contingency fund to cover 3-6 months net pay for use in exceptional circumstances only such as job loss or illness. Typically in an easy access ISA or high interest current account.

Known annual expenses such as holiday and spending money, car insurance and service, Christmas and birthdays etc. Typically in an easy access ISA or high interest current account.

Unknown annual expenses such as car repairs, TV breakdown, replacement white goods etc. Something will always break! Typically in an easy access ISA or high interest current account.

Building for the nearer future such as house deposit, replacement car etc. Regular savings accounts and fixed rate ISAs / term deposits.

Longer term future such as education costs for kids (born or unborn). Stocks and shares ISAs. Employee share schemes.

Retirement. Pension. Maximise employer contributions.

Big tip - pay the essentials, save, then spend. In that order.

Your_Hero

Good advice from all above. In my experience, for someone who's just started a new job (your first job too), it is better for you not to use a long term savings plan, such as a stocks and shares ISA. This is because your employment is not stable as such, and you may switch jobs/employers etc.


Best to stick to ordinary savings accounts paying 5% (taxable interest). Once you have built up a good buffer, say 3-6 month's net salary, you may wish to look at something more rewarding for the longer term.

moxter

A couple of general points.

The first is that not many 25 year olds save much if at all. By starting to put some money aside now, you'll be getting a little headstart on many of your peers.

The second is that with youth on your side you have the power of compound interest in your favour. This is particularly true of the longest investment of them all - your pension. It might feel like a long time away, but in only a few years you'll be thinking about it and regretting you didn't put something away when you were in your mid 20s - that's when your money will work hardest. Try playing with a pensions calculator and you'll realise what I mean - it's FAR better to start getting something in your pension at 25 than at 35.

Then as others have stated, think about your goals and what you can afford. A reasonable assumption is that you'll have multiple goals, all of which feel cripplingly expensive. Pension. House deposit. Kids (maybe not, but you never know). Car. Big holiday. Emergency fund. The timescales on these might be very different. Then put your money into different places accordingly (savings account/ISA for the short term goals; S&S ISA for the medium-long term goals with portfolio built depending on the timescale; pension for pension!)

You're on a decent salary for a 25 year old, so build up some savings while you're in that position as you never know when your luck might run out. As to the amount you put away, basically "as much as you can afford" is a good guide but £250 a month is a decent start - maybe go through some bank statements to work out where your money is going at the moment and ask yourself if that's where you want it to be going.

Eco_Miser

All good advice above. Remember that your unavoidable expenses will rise disproportionately in future, so save as much as you can now. Obviously, you want to spend a little on yourself now too, as a reward for all the hard work you're going to do, but take care of your future goals first.

Totton

My thought is that £250 is too little, I reckon you can probably live on a lot less than £1,400 after your rent has been paid. Many families manage on less than that so grab the chance to squirrel away more whilst you can afford to (if you can!)

I would opt for putting half into cash savings and half into investments, with a favourable wind you will grow those investments faster than the savings, this should help you in the future. Eventually life will demand more of your money but you can scale back those savings if need be.

So, in brief, if at all possible save more than £250 a month whilst you can.

ps. Leave enough for some fun though :-)

colsten

Not much to add to what has already been said. Strike a sensible and responsible balance between having a life now, and having a life at various stages in the future, even if that future is 40-50 years away.

Hang out a bit on the financial parts of the MSE Forum, people discuss lots of great ideas. Before long, you will be able to tell people what worked for you and why it's a great idea what you did.

jimjames

PeacefulWaters wrote: »

Big tip - pay the essentials, save, then spend. In that order.

Great way of putting it and one that most people don't follow.

organic_wanabe

My 22 year old son started working in London last September. His gross salary is just over £3,000 p.m. and his net salary is around the same as yours (after deductions have been made for Tax, NI, Private Health Insurance, Pension (his employer contributes 13%/he contributes 3% - I wish he would contribute 7%), Disability Insurance and Student Loan). His share of rent and household bills amount to roughly £800 p.m. He is fortunate because he can walk to work in around 20 minutes, so only has to top up his Oyster card with £20 once per month or so. He has a gym membership and a very healthy social life. Even so he manages to save over £500 p.m.

He saves on outgoings by having a Tastecard (came free with his NatWest graduate account) so uses this when eating out; using his 16-25 Railcard when he travels home by train (also free when his NatWest account was a Student Account); taking a packed lunch or heating up a carton/tin of soup for lunch; buying his alcohol in Aldi or when on offer!

His salary goes in to a Santander 123 account for the interest and Direct Debit credits. He uses his NatWest bank account for everyday use, transferring over £100 from Santander each time the NatWest balance get low. Towards the end of March 2014 he transferred most of what he had accumulated in his Santander 123 into a S&S ISA (he works in Investment) leaving around 3 months net salary in the account as a 'cushion'.

Hopefully that will give you some idea of what can be done.

Good luck.