24 going on debt free - how can I be smart with £?

ambitiouspanda

DrEskimo wrote: »

What student loan plan are you on? As above, overpaying a student loan is generally not that advisable, but the interest rate is much lower on a plan 1, and for me (who has a plan 1 student loan) I really don't see any huge advantage in paying it early. Plan 2 when you're earning £45k (and have good prospects to earn more), then overpayment could be a good idea, but I would tend to make that my last priority.

For me, my priority would be to start building an emergency fund and pay off my credit card debt. Would start with £1k put aside, then start attacking the Credit Card debt. Whilst you could move debt to 0% interest and get better return on savings, for me it's liability that would be an unwelcome burden in any worse case scenario. Should the unthinkable happen and you lose your job, the last think you want is to be worrying about is credit card debt eating into your savings while you try to maintain other living expenses...

After that, I would continue to build the emergency fund and get it to around 3-6months of expenses.
Depending on your pension situation, I would ensure I am contributing a good amount to that, then start saving any additional fund towards a house purchase. Buying in London is not easy, and will only get harder and harder, so the faster you can get yourself on the ladder the better IMO.

I think those would be my short and medium term goals. Don't think you need to look at other things like life insurance, investments or those matters until after the house goal, but YMMV. For me, I would stick to just simple term life insurance, and set it to the amount of your mortgage when you reach that stage.

HTH

Hello! I am on the pre 2012/plan 1/3k fees. I think you’re right about the emergency fund. I have £0 to my name. Literally! I promised myself that once I pay off this cc bills I would become an aggressive saver! By God’s almighty grace I am already making moves towards this. It is shocking that on my salary I have £0 to my name. But this has now changed!

I like your plan! 1. Put aside £1k for an emergency fund THE. save 3-6 months of expenses. 2. Put money aside for the pension + employer match 3. Start saving for house 4. Get a simple life insurance geared towards mortgage etc..

I want to buy a home with my husband (when I meet him). It may be easier buying in London then. Until then I plan on saving a lot £10-40K aside for a down payment. I pray he is well to do and financial savvy! :rotfl::rotfl:

Thank you for your input dear!

DrEskimo

Alexland wrote: »

Even if you do have a partner and/or dependents the amount of cover you need will depend on not just the mortgage balance but their future needs and the amount that would be released from your pension, etc.

Yea I have debated increasing my cover. At the moment I have a fixed term amount that is my mortgage amount. It isn't decreasing, so will start being more than my mortgage now, but I envisage we will move in the next few years and borrow more so will have to increase.

At the moment, mortgage is really the only major expense. Both me or my partner would be fine dealing with other expenses mortgage free, but that will obviously change when little ones appear.

Would be interesting to see how much my premium increases with additional cover though.

Alexland

On your credit card feedback the most important concept to get your head around is financial discipline. To achieve this you need to find the right balance between your short and long term needs and set a realistic budget for your living expenses. I have a forecast spreadsheet of how much money I would be able to accumulate in each account at the end of each tax year.

When you have control of your spending it shouldn't matter how much credit is available to you. This is when you can start using credit to your advantage to stooze on interest free cards or borrow to acquire an appreciating asset (such as a mortgage on a property).

You are right credit cards are no good if you don't have discipline. Frankly you don't accumulate wealth being a spender on disposable or depreciating assets.

Skipton building society offer a Lifetime ISA in which you get a 25% bonus on your contributions (up to £4k per tax year for up to £1k bonus) which you can use to buy your first property worth up to £450k.

If you have £2,500 you could open a Nationwide Flex Direct account which will pay 5% interest for 12 months. It's a one time only offer so don't open it until you have all the money ready. Once it is open they have a regular saver where you can save up to £250 per month at 5% interest.

In terms of investing in your pension I would agree that around 15% total contribution (from yourself and employer) is reasonable for starting at your age.

I really don't understand why you would want to spend money insuring your life at this stage - who would be the beneficiary?

I was lucky and my wife was financially savvy.

Alex

DrEskimo

ambitiouspanda wrote: »

Hello! I am on the pre 2012/plan 1/3k fees. I think you!!!8217;re right about the emergency fund. I have £0 to my name. Literally! I promised myself that once I pay off this cc bills I would become an aggressive saver! By God!!!8217;s almighty grace I am already making moves towards this. It is shocking that on my salary I have £0 to my name. But this has now changed!

I like your plan! 1. Put aside £1k for an emergency fund THE. save 3-6 months of expenses. 2. Put money aside for the pension + employer match 3. Start saving for house 4. Get a simple life insurance geared towards mortgage etc..

I want to buy a home with my husband (when I meet him). It may be easier buying in London then. Until then I plan on saving a lot £10-40K aside for a down payment. I pray he is well to do and financial savvy! :rotfl::rotfl:

Thank you for your input dear!

If you haven't done so, a written budget each month can be really helpful. I'm a bit of a numbers nerd (statistician by trade), but I spend my time outlining budgets and savings goals on spreadsheets. This really helps me track my money and keep on target with saving goals and things. Nothing fancy, just your income up top, and then living expenses listed below.

As others have suggested, make sure you research the different LISA and HTB schemes to help you save for your house deposit. Worth taking advantage of those, along with high interest savings accounts. A good list can be found at the top of the web page. I'm just in the process of opening a NationWide account (and savings account) as they offer 5% interest on part of my savings.

Also see other replies/further research regarding life insurance, as my comment was more a passing comment, rather then any real in depth advice tailored to your situation. As others have highlighted, it was probably more confusing than helpful....

ValiantSon

ambitiouspanda wrote: »

Hi, I really don!!!8217;t like cc or I am yet to see the benefits of one. I!!!8217;ve noticed that 1 month of spending can result in 2 months of repaying. So just imagine the setback it can have. God willing I will not touch a credit card again after paying this one off.

Credit cards can be very useful if used wisely. You get better protection against problems with purchases through Section 75; they give you an interest free period, so your money continues to earn interest in your bank account for longer each month; and if you pick the right one they pay cashback or points for schemes like Avios or Tesco Clubcard. Don't dismiss them out of hand.

You do, however, need to use them wisely, and that means budgeting so that you only spend each month what you have left out of your salary after all bills. You then need to pay the balance in full every month, without fail - you can set up a direct debit to do this so that you never miss a payment.

ambitiouspanda wrote: »

Where can I sign up for this 5% saver? What bank is offering this?

There are several banks offering 5% regular savers. To access them you do need to also have a current account with the bank, but you can open more than one current account (and switching bonuses can make you a bit extra in the process). Currently the following all offer 5% regular savers:

Santander = £200 p/m maximum deposit (needs a Santander 123 or 123 Lite current account)

Nationwide = £250 p/m maximum deposit (needs a FlexDirect, FlexAccount, or FlexPlus current account) - Currently offering £100 switching bonus if referred by a friend who already has an account.

HSBC = £250 p/m maximum deposit (needs an HSBC Advance current account) - Currently offering £150 switching bonus, plus another £50 in 12 months.

First Direct = £300 p/m maximum deposit (needs a 1st current account) - Currently offering £125 switching bonus.

Link to details of regular savers: https://www.moneysavingexpert.com/savings/best-regular-savings-accounts

ambitiouspanda wrote: »

ALSO, what bank is offering this 25% bonus? I!!!8217;ll sign up for one before the tax year comes to an need. I believe there are some restrictions regarding opening Isa accounts. Is the cut off Jan-Dec or Apr-Apr?

The 25% bonus is on a Lifetime ISA (LISA). The maximum deposit per year is £4,000, so you can get up to £1,000 extra from the government each year. At the moment there is only one provider of cash LISAs and that is Skipton Building Society. The alternative is a Stocks and Shares LISA, but if you are looking to buy in the next 5 years it would be pretty high risk to use stocks and shares investments (if it was a longer timeframe then it may make sense, but ask separate questions about that).

Lifetime ISAs: https://www.moneysavingexpert.com/savings/lifetime-ISAs

The tax year runs from 6th April to 5th April. You still have time, therefore to put £4,000 in and get a £1,000 bonus for this tax year, and then put another £4,000 in during the course of next tax year (from 6th April) to get another £1,000 bonus.

ambitiouspanda wrote: »

My employer doesn!!!8217;t match my contribution. I checked but I!!!8217;ll double check again tomorrow morning.

Your employer has to pay something into your pension, but they won't necessarily match your contributions to the level you want. 15% as a combined per centage of salary is a pretty good rule of thumb, although as your pay increase it would be a good idea to continue to up your contribution. Keep in mind that you get tax relief on this money.

ambitiouspanda wrote: »

I!!!8217;m not sure what my financial needs are yet for the future. I don!!!8217;t have a husband or kids yet. Do you recommend any sensible amount I should put asides?

A good emergency fund should cover around six months worth of expenditure. Work out what you are committed to spending, plus a bit extra for food, and then multiply that figure by six. That is how much you ought to aim to hold in cash in your bank accounts.

ambitiouspanda wrote: »

In regards to the life insurance I thought it would be a sensible idea as my parents who are 50+ recently got one. Yes you!!!8217;re right about the financial advisor!

Thanks in advance! :A:money:

Life assurance is there to provide money for your dependants in the event of your death. As you don't have any dependants at present it isn't worth spending the money on. If you buy a house on your own then it still won't be, as the house will be sold to pay off the mortgage and nobody will be left with your debt.

Given your age and current salary you are in a good position.

I would clear the credit cards. I agree with Alex that the money could be used differently if you move the balance to an interest free card, but for me the psychological impact of owing that money would be a constant worry. You have to decide how you feel about it.

As you are a higher rate tax payer and it is reasonable to expect that your salary will rise further, the student loan is more of an issue than it would be to a lot of your contemporaries. Looking to pay it off is a good idea, but I would make the establishing of an emergency fund (which can be done through the regular savers to begin with) and setting up a LISA should take precedence. Once you have those things up and running, I would suggest attacking that loan.

I agree with others that if at all possible, you should get the ball rolling with as much of £4,000 as you can afford in a LISA this tax year (i.e. before 6th April) before worrying about anything else.

tibbles209

ambitiouspanda wrote: »

Hey! Thank you. I am trying

God willing, I will not use a credit card again. It!!!8217;s a vicious circle. If you spend £1k this month you spend 2+ months repaying it on average because life gets in the way. I thank God for wisdom because I can honestly say I spent that initial £5K cc bill on utter rubbish. I can!!!8217;t see anything worthwhile or intelligent in my room. :eek::rotfl:

Yes - I plan on clearing my student loan quicker. I!!!8217;m not sure if it!!!8217;s a smart idea but I!!!8217;m on plan 1/pre 2012 and I!!!8217;d rather keep £3.5K in salary than have everything deducted to £2.5K etc. I!!!8217;m thinking about when I have kids (God willing). Every penny will count.

Pension - is that 15% per year? I suppose that!!!8217;s the only logical answer :rotfl: I!!!8217;ve asked my employer if they match the pension contribution but HR said no. I!!!8217;ll ask again tomorrow.

Life time ISA - if I was to open one now I don!!!8217;t think I!!!8217;d have any money to put in there. Should I open one up anyway so that the terms would ultimately benefit me with the free £1K? I!!!8217;m definitely going to have a read.

I really want to invest but don!!!8217;t know how to go about it. But as you suggested maybe a thought for when my debts are paid by April/May!

Thank you again! You!!!8217;re so kind!

If you find credit cards to be a temptation to waste money/spend frivolously in a way that you later regret then you are best staying clear of them. It is good that you have recognised this before getting in too much debt; just take a look at the Debt Free Wannabe board to see how deep that hole can get. There are people there working to pay off many tens of thousands of pounds of debt.

As you were a pre-2012 student your interest rate is actually not too bad on your student loan, so there is probably not too much urgency in terms of paying it off (although I 100% understand the desire to; I think I would feel much the same in your circumstances).

Yes 15%ish of your annual gross salary would be a good target for pension contributions at your age, although I realise that sounds like an awful lot, and if it is unrealistic for you then whatever you can afford would be a good start. Your employer is legally obliged to offer a minimum of a 1% employer contribution (soon to be going up to 2% in April this year).

You do need to have a Lifetime ISA open for at least 1 year before you can use it, so there could be a benefit in opening one ASAP just to get the clock ticking. But the main reason we suggested opening a LISA before the end of the tax year (last day of current tax year is 5th April) is that you have a £4000 LISA allowance (i.e. you can save up to £4000 in a LISA this tax year, which would then be subject to a 25% government bonus, so up to £1000 free money) which you will lose once the tax year is over if you haven't used it. That might not do you much good if you have no money to put in there, although if you reason you don't have any money to save is that you are significantly overpaying your credit card then it may be worth dropping down to minimum repayments for a couple of months to use as much of your 2017/2018 LISA allowance as possible before its gone.

Investing can be a very complex area, but it can be done reasonably successfully in a much simpler way too with all-in-one global multi asset funds like the vanguard lifestrategy range, or the HSBC global cautious/balanced/dynamic funds, and other similar funds. I like these funds as they are straightforward enough to let you just get started, and learn more as you go/do further research. Investing can be quite intimidating and it is easy to end up frozen with indecision/ perpetually feel not ready. Certainly worth getting at least your credit card paid off first, and prioritising filling up your LISA allowance.
With the need to also build an emergency fund, it looks like there are a few places your money needs to go before investments, but it i really worth starting to learn about them now, so that once you have funds available you can get started

Alexland

tibbles209 wrote: »

But the main reason we suggested opening a LISA before the end of the tax year (last day of current tax year is 5th April) is that you have a £4000 LISA allowance (i.e. you can save up to £4000 in a LISA this tax year, which would then be subject to a 25% government bonus, so up to £1000 free money) which you will lose once the tax year is over if you haven't used it. That might not do you much good if you have no money to put in there, although if you reason you don't have any money to save is that you are significantly overpaying your credit card then it may be worth dropping down to minimum repayments for a couple of months to use as much of your 2017/2018 LISA allowance as possible before its gone.

I think there is a growing consensus to stop worrying about debt, make sure it is efficient and you are not paying interest where possible, and focus on budgeting and taking advantage of high interest accounts and government bonuses available each tax year.

Alex

atush

Alistair31 wrote: »

Even without Corbyns daft promises it may not be wise to rush into paying off a student loan.

I am going to guess you dont have student loans racking up at over 6% and earning 45K (so you will pay it all). Although it appears the OP may be paying less than this. but mine are around that age and would have paid the higher freight. These days student loans are not a good deal.


As for the OP, forget the LI. You dont need it (and might have some with your employer). So pay off the debt asap. Consider doing an SOA on the debt free board to get ideas on how to lower our outgoing. Do a spending diary tracking every pound you spend. You will find waster to cut out.

Then slam this extra cash against the CC debt. Save in cash after for an emergency fund (so youd ont go back into debt). Contribute enough to get yoru max employer match on your pension. then look at HTB isas and LIsas.

atush

Hi, I really don!!!8217;t like cc or I am yet to see the benefits of one.

Well there are loads of benefits to CCs aas long as you dont carry a balance and pay them off at the end fo the month.

1 credit history
2 interest free money for up to 40 days
3 perks. I get cash back, free hotel stays, flights and points to spend in store or online.

4 consumer protection- you get this with CCs and you dont with DCs.