22 years old, what to do with £20-25k?

sm12345

Hi all,

I'm looking for advice on what to do with £20-25k.

My current situation is as follows:
- In last year of university, looking to do a postgraduate year to become a teacher (will finish my studies and start work in 2023)
- Currently living with my Dad rent free however will be looking to move out in in 2-3 years
- Don't have a pension/retirement fund and don't think I'm looking to invest in that for now (unless anyone can change my mind?)
- Pretty clueless when it comes to ISAs, stocks/shares and investing
- Don't really have any large debts, I have a credit card I comfortably pay off in full each month (my limit is only £500) and have a car under a PCP deal finishing next June
- Based in Scotland

My plan was to use the money for a deposit on my first home (probably through a lifetime ISA) however I also wouldn't mind renting if it means I can maximise this £20-25k more in another way. In my head using the money for property is a safe choice but at the same time I wonder if it really is a safe choice considering how high house prices are - surely I would end up losing money long term if the housing market dips?

Stocks and shares kind of scare me as I look at them as being risky since I don't know much about them, but maybe someone can give me more advice on this?

Sorry to come on here being so clueless but I really am not financially savvy and would like some independent advice on what to do with this money. I wondered whether I should speak to a mortgage or financial adviser, however I thought I would get non-biased thoughts from you all on here.

Thanks in advance! 😊

HCIMbtw

There is no one answer.  

I essentially split my savings across a house/mortgage, a pension and a S&S ISA. 

I prioritised house, then pension, then S&S to fund a bridge. I don't really regret that order. But I was recently considering that interest only mortgage, putting everything else into savings might've been a better option (I'm 34 so still possible to change it up).

The only down side to a house is lack of flexibility in being able to move for new jobs or such very easily. But paying rental costs feels like a total waste of money compared to a mortgage for what you get. 

So have to decide what you want to use the money for. 

In the meantime have it in a cash savings account as a bare minimum. Then if you know how long you are willing to tuck it away you can plan a strategy a bit easier. 

My ISA is 100% S&S, because my investment horizon is really long, couple of decades at least. I was down about 30% at one point last year, currently up 35% at the moment. 

Robin9

I would have a bit of fun with say 10% of it -  see a bit of the world.

tebbins

No such thing as too early to start thinking about this sort of thing.

Teacher's pensions are excellent so I wouldn't worry about putting money into a SIPP just yet.
Have you looked at teacher training scholarships and bursaries https://getintoteaching.education.gov.uk/funding-your-training#bursaries-and-scholarships (unsure if it's different in Scotland).

A cash LISA is a great start, you can put £4k in now, another £4k in next April. NB it has to be open for 12 months before you can use it but hopefully that fits your time frame. You could buy a home with your LISA and take advantage of the rent a room scheme (https://blog.moneysavingexpert.com/2016/04/can-you-rent-out-a-home-bought-with-a-help-to-buy-isalifetime-isa/), so buying with a LISA does not strictly rule out making any rental income from it in future however the idea is that it should become your primary residence after purchase.

Re: BTL, the forum can direct you to general information such as https://monevator.com/its-too-late-to-get-into-buy-to-let/ but we can only provide comments and opinions on specific information i.e. if you were in a position to buy a property and knew the rent and mortgage interest.

There's nothing wrong with renting, some people do it long-term for the flexibility and having a landlord responsible for maintenance and repairs. However you are unlikely to find an investment product that can generate a return comparable with the return your landlord would be getting. So it's not just a financial decision.

Search beginner investing articles on monevator.com for an introduction to stocks and bonds etc.

To sum up, I think:

- max out your LISA

- keep a healthy amount of cash spare in the highest interest savings account you can, bearing in mind you may be 2-3 years away from home ownership so need more than the usual 6-12 months of spending
- consider a stocks & shares ISA if you are confident you have more cash savings than you need available (https://www.moneysavingexpert.com/savings/stocks-shares-isas/). As for what investments, as a beginner most in the forum would suggest a multi-asset fund (https://monevator.com/passive-fund-of-funds-the-rivals/)

- don't worry about pensions just yet, your teacher's and state pension combined will make for a decent retirement and you can always move money from savings and ISA investments into a pension wrapper later down the line.

jay1804

What's your plans with the PCP, pay it off and own the car, return the car or get another PCP?

If you're not sure on buying a property maybe open a LISA with £1 to get the clock ticking.

sm12345

Robin9 said:

I would have a bit of fun with say 10% of it -  see a bit of the world.

I should have mentioned this is part of the plan! I don't know how much exactly I am getting as the money I'm getting is from a piece of artwork I have that is getting auctioned off - reserve is £25k, estimate is 25-35k but I need to pay 10% on whatever it goes for. Planning on keeping at least £2-3k to go inter-railing

grumiofoundation

If you are looking to use the money for a house purchase* then saving in cash, and especially maximising lifetime ISA bonus is very sensible. 

*assuming 450k LISA limit not an issue.

Regarding owning versus renting over the long term you are very very unlikely to lose money by buying, even if the housing markets drops you are paying off the mortgage and will end up with a mortgage free property, whereas if renting you will have to continue to pay rent. This is in the long term, over the short/medium term price drops could have more of an impact.

So rushing to buy when you are, for example, not sure yet where you want to live can end up in you losing money if you have to sell and re-buy elsewhere - not just from a potential drop in house prices but from having to pay 2 sets of all fees, sacrificing first time buyer perks (e.g LISA).

Pensions:

When you start work as a teacher make sure you opt into the pension scheme. This is a defined benefit scheme and is not reliant on investment growth. The only drawback to this scheme is that is cannot be accessed at 55 (soon to be 57) in the way that defined contribution (i.e. dependant on investments) can be. Is currently state pension age when you can access it. So if you want to have the option to retire before then you will need to have the money to make up the gap.  Investing in stocks and shares via a pension (or stocks and shares lifetime ISA) will be the most tax efficient way to save for this - with the obvious drawback that the money is not accessible until retirement.  (Edit: Ignore - see later post)

Over the long term stocks and shares are not as risky as they may seem and are most likely to beat cash. Holding money in cash means your money will lose 'spending power' due to inflation. So £100 today will not buy you £100 worth of goods in 40 years. Whereas stocks and shares should maintain the value (i.e. spending power) of your money more. The key is long term. In the short term the chances of losing money and getting back less than you invest is higher (why, for example, it wouldn't be sensible to invest deposit now if you are aiming to buy in 2-3 years). Over a longer time period you have longer to balance out the drops. 

Although not your most immediate concern it is worth educating yourself regarding investments.Read some threads on here and there are a lot of basic resources online. Generally the best place to start is by looking at globally diversified investments (e.g. multi asset funds as shown below). This spreads your investments across thousands of companies, rather than just having shares in a few companies - which is generally seen as higher risk. If you are interested in dipping your toe into the water of investing you could look at investing a small amounts and utilising cashback to give a bit of a boost. For example wealthify is currently offering I believe £40 back on a £400 investment. RBS and Natwest are offering £50 cashback. Obviously if markets drop, even with cashback, you could still lose money but gives you a headstart. These options are not the cheapest so if you would invest significantly more than the minimum probably worth looking at a cheaper option.

https://monevator.com/passive-fund-of-funds-the-rivals/https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/why-it-is-so-important-to-diversifyhttps://www.moneysavingexpert.com/savings/robo-funds/

As posters above say very sensible to keep a cash buffer so you don't find yourself having to dip into investments.  For example 6 months expenses would be very sensible - some people would be comfortable with much less, some would want more.

Good luck with teacher training.

sm12345

jay1804 said:

What's your plans with the PCP, pay it off and own the car, return the car or get another PCP?

If you're not sure on buying a property maybe open a LISA with £1 to get the clock ticking.

I'll probably return the car and get another PCP since I'm not bothered too much about owning a car

Thrugelmir

sm12345 said:

My plan was to use the money for a deposit on my first home (probably through a lifetime ISA) however I also wouldn't mind renting if it means I can maximise this £20-25k more in another way. 

Once you own you home outright there's no rent to pay. Unless you've better personal objectives then a LISA seems to be the way to go. At least leave your options open. 

sm12345

Thank you all for your advice so far, especially @grumiofoundation and @tebbins

All your advice is along the lines of what I was thinking to do with the money anyways, so it's good to hear I'm on the right track

I just have a few more questions (they might be silly, apologies if they are but as I say I'm clueless about finances)

- What should I do with the money in the meantime of maxing out my LISA since the max is 4k per year? Should I keep the rest in a high interest savings account?

- Is money in a LISA not accounted for in a mortgage application? i.e. do I need 6-12 months expenses saved alongside a maxed out LISA?
- What happens if I buy a home only in my name with a LISA, then in a few years want to get a joint mortgage with my boyfriend who would be a first time buyer? I'd always said I wanted my first home to be my own, and I think I want to move out before him, but of course at some point I want to have a joint mortgage with him. @grumiofoundation - is this where you'd recommend renting for a few years instead of rushing to buy so that I would avoid any fees in selling and rebuying?

Thrugelmir

sm12345 said:

- What happens if I buy a home only in my name with a LISA, then in a few years want to get a joint mortgage with my boyfriend who would be a first time buyer? I'd always said I wanted my first home to be my own, and I think I want to move out before him, but of course at some point I want to have a joint mortgage with him. 

You can protect your financial interests using a declaration of trust. A legally binding document that will be drawn up by a solicitor. A LISA is a gift horse in terms of the bonus available.