Is it normal to not have any savings?

Aretnap

One thing in your favour is that at 23, the likelihood is that your salary will increase significantly over the next few years.

This means that your discretionary income (ie the difference between your actual income and the cost of the basic essentials of life) is likely to increase dramatically. This is because the cost of the basic essentials is relatively fixed - your mortgage is (or can be) completely fixed, and costs like food, electricity, TV licence will hopefully increase more slowly than your actual salary does. So if you're starting from a point where your salary just about covers the basic essentials, a relatively small pay rise could easily double or triple your discretionary income.

Your discretionary income is obviously what you have available for luxuries, but also what you have available for saving. Certainly enjoy life now and spend some of it on luxuries - but the secret to getting rich is to keep back a decent proportion of it for saving, and grow the amount you're saving as your discretionary income increases.

You could, for example, set yourself a rule that for every £100/month your pay goes up, you start putting (say) £50/month into savings. Put it into your savings account by standing order on payday every month - if you don't see it, you don't miss it. Start by building up an emergency fund of a few months' salary to cover the risk of unemployment or unexpected bills (genuinely unexpected ones like the boiler breaking down - things like insurance should be in the budget), then start thinking about investing or overpaying on the mortgage. Trust me, your 40-year old self will thank you for it (and contrary to what I assumed when I was 23, life is still remarkably enjoyable at 40).

lisa110rry

I would only add one thing to what aretnap has said. I think the savings transfer should happen the day after payday. I have known, with the best will in the world, for salaries to be paid late for one reason or another...just saying... (I am a Company Secretary, these things happen.)

Rafter

There is also little point in having significant savings - beyond say a safety net of a few months outgoings - while you also have large amounts of debt on your house.

You are likely to earn a lot less in interest on your savings than you will pay on your mortgage (teaser rates on the best current accounts being the exception).

When you come to remortgage, it might be worth looking at an offset account - that way at least the savings you have (and your salary each month) are working to reduce your mortgage interest and bringing forward your debt free date.

Good luck.

R

jimjames

Rafter wrote: »

There is also little point in having significant savings - beyond say a safety net of a few months outgoings - while you also have large amounts of debt on your house.

I think that's one where I'd disagree - except replacing the word savings with investments. I'd agree little point in massive cash savings with a mortgage but I think there is benefit in holding investments alongside a mortgage.


My mortgage is at 2.24%, my investments pay dividends of around 3-4% and that's before considering any capital growth. So I do think it's worth having those as well as a mortgage and indeed paying into a pension.

Playing_with_Fire_2

Echoing a lot of what has been said here.

I think it is very typical for people to have no savings and nothing 'left over' at the end of the month. Regardless of how frequently other people do this, I didn't like being in this situation, and wouldn't recommend it.

It takes super human mental maths and discipline to mentally account for all the annual and occasional spends, predictable emergencies (car fails MOT), predictable social spends (birthdays, weddings etc), and have anything left over.

However it is easier (although it requires work up front) to budget for the annual costs, estimate surprises, and put this into a 'bills account', then decide what you want to save each month and put this into a separate account, by standing order, as soon as possible. Then all you need to do is not spend more than what is left (have a buffer if you like). YNAB is good for this, but so is the MSE budgeting tool and so is a spreadsheet or calculator (even the back of an envelope).

Well done for asking such an insightful question at 23, now decide what you want the rest of your financial life to look life.

atush

jimjames wrote: »

I think that's one where I'd disagree - except replacing the word savings with investments. I'd agree little point in massive cash savings with a mortgage but I think there is benefit in holding investments alongside a mortgage.


My mortgage is at 2.24%, my investments pay dividends of around 3-4% and that's before considering any capital growth. So I do think it's worth having those as well as a mortgage and indeed paying into a pension.

I agree.

Our mtg is just over 1% so investments can fare better n the longer term. Shorter term? Sure

But savings on cash, apart from emergency funds can be a mugs game/ Apart from retirees maybe, who should have a min of 1 years cash, and to my mind 2+