26 Years Old, Is my savings plan good?

Ch1ll1Phlakes

Aiden8889 said:

Emmia said:

At 26 I'd be putting some of those monthly savings into a SIPP - investment in your pension now while you're young will have a big pay off due to compounding. 

I'd also (depending on your plans for housing) be looking at S&S ISAs or a LISA.

It doesn't need to be complicated - pick an ISA and shove the money in it - spending time dithering or "researching" means you're not investing and losing money in interest.

Would you say a Vanguard managed S&S ISA is fine or do you mean self managed?

I can happily get a managed portfolio but I fear the returns will just end up being the same as a cash isa.

For someone starting out with a small pot I would suggest avoiding Vanguard at least to start their fees can be quite expensive compared to other providers.

At 26, you are no doubt comfortable with apps so realistically I'd suggest using Trading 212 as it's very cheap. Though if you're not sure have a look at different providers. You don't need to be paying someone to do it for you, essentially taking a cut of your earnings/investment growth. I'll leave you the link to Financial Interest who I found useful in choosing a S&S ISA. They also have a free beginners investing course you may find useful.
Financial Interest: Personal Finance Made Easy

Furthermore, there's been a recent thread in the ISAs section of the forum discussing S&S ISA investing for beginners so I'll link that for you to check out. I imagine you will find yourself in a similar boat to the OP of that thread. Help/advice on Stocks and Shares ISAs for a beginner — MoneySavingExpert Forum

Aiden8889

Exodi said:

Aiden8889 said:

penners324 said:

Pension scheme seems a better place for most of it. Or as a house deposit 

Well I don't actually pay into a pension 🤣 I always opted out... I know that seems a bit stupid but I was going to wait until I'm chartered to start paying in.

I have little faith in the pension system to be fair, the age has only gone up and up for me within my lifetime. When I was young it was 61 and now it's 67.

This is flatly insane. Your chosen area of expertise makes it all the more astonishing.

Not only do you get employer contributions (aka free money) added to your pension, you also receive tax relief as well as the lump sum allowance on the way out.

So you've said you save 35% of your net wage, which is £670 a month - this means you earn £1914.29 per month. This would equate to a gross annual salary of around £25,900, if you consider income tax and NI.

Let's say you decided to add that money to a pension instead, and let's say worse case scenario you don't have access to salary sacrifice and your employer is a meany who only makes the legal minimum contributions (if you pay in 5%, they pay in 3%).

That means if you made the minimum contribution also, you'd lose 4% of £1914.29, or £76.57 from your pay. Then to your pension pot, you'd get the £76.57 + £19.14 tax relief + £64.75 employer contribution = £160.46.

You've turned £76.57 from your pay into £160.46 in your pension pot. But that's not just it, because when you take it out in retirement, 25% can be taken tax free - meaning if you were a basic rate tax payer in retirement, you'd save £8.02 in tax on this.

This doesn't even include if you have the ability to salary sacrifice, and can save on employer NI too...

It really is money for nothing being left on the table. Being opted in to your workplace pension is rule #1 in financial planning.

You may not have faith in the state pension system (I also have concerns, many share these) however very few have concerns about their private pensions - also FYI you can generally access these 10 years earlier than state pension age, so 57 not 67.

Unfortunately we see a lot of "I was going to wait until X" - there's always a reason. Just like how you'll look into investing in a few years. I fear your reluctance to look into pensions or investing will cost your future self significantly in missed compounding. Personally I think you've become a little obsessed with saving and have missed the forest for the trees.

Aiden8889 said:
I probably plan to tie it away for 3 years and maybe buy a house, rent 2 rooms out (for a reasonable price) as it isn't a HMO in my district and basically have my house and bills pay for themselves, rent that and rinse and repeat.

This sounds very much like a financial plan you'd hear from TikTok... tread very carefully is all I'll say.

It doesn't really make it astonishing... I don't work in Payroll, I don't work with Personal Tax, I'm just on the transactional side for one company (not a practice) and hoping to become a Management Accountant. (I should have been specific about this prior to the roast)

My salary is 27,000 gross, but I have a weird tax code which I do need to ask HMRC about. I've seen you spell it out and I'm now considering it, I can just take that 70 something from my savings and put it in there.

I didn't actually know you can withdraw a private pensions at 57 though they will probably increase it if they can haha.

The "TikTok" plan isn't from any social media, I haven't purchased any property developer get rich quick schemes nor does this even follow their model.

Their model is to either buy a home on interest only and charge stupid rent or make it into a HMO for even more profit.

This was an idea I had, why not make the most of buying a first home and have it pay for itself?

But I will take what you said about pensions into account, I'd opted out previously because I was always in low paid work so I just didn't see the benefit then I took up AAT and completed that and have a job in Finance that pays better.

Aiden8889

Emmia said:

Aiden8889 said:

penners324 said:

Pension scheme seems a better place for most of it. Or as a house deposit 

Well I don't actually pay into a pension 🤣 I always opted out... I know that seems a bit stupid but I was going to wait until I'm chartered to start paying in.

I have little faith in the pension system to be fair, the age has only gone up and up for me within my lifetime. When I was young it was 61 and now it's 67.

I probably plan to tie it away for 3 years and maybe buy a house, rent 2 rooms out (for a reasonable price) as it isn't a HMO in my district and basically have my house and bills pay for themselves, rent that and rinse and repeat.

Though I could change my mind in 3 years and decide I want to open a business and put my qualification to use though once qualified I will be on at least £45,000 a year so it might be comfortable to stay where I am.

As a soon to be qualified accountant and someone who is seeking to maximise the benefit they can get from their savings and investments, that is frankly astonishing.

You're turning down free money if your employer contributes, you can get tax relief, you're not benefitting from the long term gains of compounding...  The younger you start with a pension, the less you need to pay in every month, to get the same overall "pot" at the end... And a pot started earlier will have a greater proportion of it's value not coming directly from your personal contributions.

I wouldn't say 3 years and 13 exams to go is soon but I understand what you are saying and will take it into account, thanks.

masonic

Aiden8889 said:

My salary is 27,000 gross, but I have a weird tax code which I do need to ask HMRC about. I've seen you spell it out and I'm now considering it, I can just take that 70 something from my savings and put it in there.

I didn't actually know you can withdraw a private pensions at 57 though they will probably increase it if they can haha.

With most employer schemes, it would need to come from your salary, not savings, to obtain the valuable employer matching.

A reasonable assumption would be that it will remain 10 years below state pension age. And I've assumed that state pension age will be 70 by the time I get there, which incidentally is where it started in the 1900s I believe.

Emmia

Aiden8889 said:

Exodi said:

Aiden8889 said:

penners324 said:

Pension scheme seems a better place for most of it. Or as a house deposit 

Well I don't actually pay into a pension 🤣 I always opted out... I know that seems a bit stupid but I was going to wait until I'm chartered to start paying in.

I have little faith in the pension system to be fair, the age has only gone up and up for me within my lifetime. When I was young it was 61 and now it's 67.

This is flatly insane. Your chosen area of expertise makes it all the more astonishing.

Not only do you get employer contributions (aka free money) added to your pension, you also receive tax relief as well as the lump sum allowance on the way out.

So you've said you save 35% of your net wage, which is £670 a month - this means you earn £1914.29 per month. This would equate to a gross annual salary of around £25,900, if you consider income tax and NI.

Let's say you decided to add that money to a pension instead, and let's say worse case scenario you don't have access to salary sacrifice and your employer is a meany who only makes the legal minimum contributions (if you pay in 5%, they pay in 3%).

That means if you made the minimum contribution also, you'd lose 4% of £1914.29, or £76.57 from your pay. Then to your pension pot, you'd get the £76.57 + £19.14 tax relief + £64.75 employer contribution = £160.46.

You've turned £76.57 from your pay into £160.46 in your pension pot. But that's not just it, because when you take it out in retirement, 25% can be taken tax free - meaning if you were a basic rate tax payer in retirement, you'd save £8.02 in tax on this.

This doesn't even include if you have the ability to salary sacrifice, and can save on employer NI too...

It really is money for nothing being left on the table. Being opted in to your workplace pension is rule #1 in financial planning.

You may not have faith in the state pension system (I also have concerns, many share these) however very few have concerns about their private pensions - also FYI you can generally access these 10 years earlier than state pension age, so 57 not 67.

Unfortunately we see a lot of "I was going to wait until X" - there's always a reason. Just like how you'll look into investing in a few years. I fear your reluctance to look into pensions or investing will cost your future self significantly in missed compounding. Personally I think you've become a little obsessed with saving and have missed the forest for the trees.

Aiden8889 said:
I probably plan to tie it away for 3 years and maybe buy a house, rent 2 rooms out (for a reasonable price) as it isn't a HMO in my district and basically have my house and bills pay for themselves, rent that and rinse and repeat.

This sounds very much like a financial plan you'd hear from TikTok... tread very carefully is all I'll say.

It doesn't really make it astonishing... I don't work in Payroll, I don't work with Personal Tax, I'm just on the transactional side for one company (not a practice) and hoping to become a Management Accountant. (I should have been specific about this prior to the roast)

My salary is 27,000 gross, but I have a weird tax code which I do need to ask HMRC about. I've seen you spell it out and I'm now considering it, I can just take that 70 something from my savings and put it in there.

I didn't actually know you can withdraw a private pensions at 57 though they will probably increase it if they can haha.

The "TikTok" plan isn't from any social media, I haven't purchased any property developer get rich quick schemes nor does this even follow their model.

Their model is to either buy a home on interest only and charge stupid rent or make it into a HMO for even more profit.

This was an idea I had, why not make the most of buying a first home and have it pay for itself?

But I will take what you said about pensions into account, I'd opted out previously because I was always in low paid work so I just didn't see the benefit then I took up AAT and completed that and have a job in Finance that pays better.

I took out my first pension when I was 24 and on about £15k a year - this was 20 years ago, but I've always been quite pension motivated. I had a pension at 19 but because I was with the company for less than 2 years it cashed out - but this was helpful for uni.

In terms of your first home - do you actually want to live in a bedsit in an HMO?  But in any case property purchase and pension savings are not incompatible. 

Exodi

Aiden8889 said:

It doesn't really make it astonishing... I don't work in Payroll, I don't work with Personal Tax, I'm just on the transactional side for one company (not a practice) and hoping to become a Management Accountant. (I should have been specific about this prior to the roast)

OK, fair enough you get off with a tap on the wrist 

Aiden8889 said:

My salary is 27,000 gross, but I have a weird tax code which I do need to ask HMRC about. I've seen you spell it out and I'm now considering it, I can just take that 70 something from my savings and put it in there.

Doesn't work like that, the auto-enrollment deal is that if you make the minimum contribution from your pay and then your employer is obliged to make the minimum contribution. Contributing separately from your savings would be awkward and generally doesn't count towards your end of the deal.

Plus remember I did the absolute minimum legal requirement of 5% employee and 3% employer in my example. Many employers will go further than this and offer employee matches (some people will get their contributions matched up to 8%, some lucky people on these forum will get double digit employer matches!). Whatever they offer it's a good idea to take maximum advantage of it as it is effectively free money (or as @Masonic puts it - not taking advantage would be like volunteering for a paycut).

Aiden8889 said:

I didn't actually know you can withdraw a private pensions at 57 though they will probably increase it if they can haha.

It's generally 10 years less than SPA (State Pension Age) so it will increase as the SPA goes up. I used 67 because that's the age you referenced in your OP, however your personal state pension age is currently 68 (so you'd get access to your private pensions from 58). Though as you say, this may increase in the future.

I say generally because technically some pension schemes have a PPA (Protected Pension Age) which can be lower, but not worth thinking about.

Aiden8889 said:

The "TikTok" plan isn't from any social media, I haven't purchased any property developer get rich quick schemes nor does this even follow their model.

Their model is to either buy a home on interest only and charge stupid rent or make it into a HMO for even more profit.

This was an idea I had, why not make the most of buying a first home and have it pay for itself?

It's the whole "have my house and bills pay for themselves, rent that and rinse and repeat" and "buying a first home and have it pay for itself".

At best it's naive, it's very similar to TikTok rhetoric. You appear to be talking about a residential repayment mortgage, so you'll be renting to lodgers (or more specifically an Excluded Occupier, assuming you share facilities) and not tenants (the latter of which require a different housing set up and usually a buy-to-let mortgage). This comes with it's own pro's and con's, the pro's being you can have them out at short notice without needing to drag it through the courts, the con's are that you are less likely to get a long-term lodger than a long-term tenant and you must appreciate that it's not uncommon for lodgers to be people that are unable to get tenancies (e.g. they have or have had financial or behavioral challenges). Those that don't would likely be using it as a short-term stop gap, while they sell their house, for example.

It could be wishful thinking to expect you're going to charge loads of money and have 100% occupancy rate (probably worth checking websites like spareroom to get a gauge on the market rate).

And even if you were fortunate enough to have a 100% occupancy rate, part of the rental income will be going towards utilities and you'll also have to start paying tax on rental income over £7.5k.

Personally, my wife wouldn't ever let us welcome 'strangers' into the house (we had two spare bedrooms, I flirted with the idea for a bit), I think she's probably watched too many TV programs where tenants/lodgers absolutely trash the house for no real reason, but obviously this is the minority.

There was a big thread where someone spoke about their journey with lodgers (I think they'd been doing it all their life), I wish I could find it, it was quite an amusing read. As you can expect, the usual with people coming back drunk at silly-o-clock in the morning and cooking chicken nuggets, someone that is perhaps a tad chore-shy, or someone putting the heating on 'Surface of the Sun' and then putting on shorts and opening their window, or furniture and appliances seemingly going missing.

If you were to consider this, I'd come at it from the perspective that you are buying a house that you want and that you are fully comfortable affording on your own - and there might be a possibility of lodgers as an additional increase stream, but certainly don't rely on it in your mind.

Aiden8889 said:

But I will take what you said about pensions into account, I'd opted out previously because I was always in low paid work so I just didn't see the benefit then I took up AAT and completed that and have a job in Finance that pays better.

I also have an AAT qualification - good for you! Glad things have improved for you.

Eco_Miser

Aiden8889 said:

My salary is 27,000 gross, but I have a weird tax code which I do need to ask HMRC about. I've seen you spell it out and I'm now considering it, I can just take that 70 something from my savings and put it in there.

As explained, the pension payment has to come from your salary, but there's nothing to stop you doing that, and making up any consequent shortfall in your available spending money from your savings.

Aiden8889

Exodi said:

Aiden8889 said:

It doesn't really make it astonishing... I don't work in Payroll, I don't work with Personal Tax, I'm just on the transactional side for one company (not a practice) and hoping to become a Management Accountant. (I should have been specific about this prior to the roast)

OK, fair enough you get off with a tap on the wrist 

Aiden8889 said:

My salary is 27,000 gross, but I have a weird tax code which I do need to ask HMRC about. I've seen you spell it out and I'm now considering it, I can just take that 70 something from my savings and put it in there.

Doesn't work like that, the auto-enrollment deal is that if you make the minimum contribution from your pay and then your employer is obliged to make the minimum contribution. Contributing separately from your savings would be awkward and generally doesn't count towards your end of the deal.

Plus remember I did the absolute minimum legal requirement of 5% employee and 3% employer in my example. Many employers will go further than this and offer employee matches (some people will get their contributions matched up to 8%, some lucky people on these forum will get double digit employer matches!). Whatever they offer it's a good idea to take maximum advantage of it as it is effectively free money (or as @Masonic puts it - not taking advantage would be like volunteering for a paycut).

Aiden8889 said:

I didn't actually know you can withdraw a private pensions at 57 though they will probably increase it if they can haha.

It's generally 10 years less than SPA (State Pension Age) so it will increase as the SPA goes up. I used 67 because that's the age you referenced in your OP, however your personal state pension age is currently 68 (so you'd get access to your private pensions from 58). Though as you say, this may increase in the future.

I say generally because technically some pension schemes have a PPA (Protected Pension Age) which can be lower, but not worth thinking about.

Aiden8889 said:

The "TikTok" plan isn't from any social media, I haven't purchased any property developer get rich quick schemes nor does this even follow their model.

Their model is to either buy a home on interest only and charge stupid rent or make it into a HMO for even more profit.

This was an idea I had, why not make the most of buying a first home and have it pay for itself?

It's the whole "have my house and bills pay for themselves, rent that and rinse and repeat" and "buying a first home and have it pay for itself".

At best it's naive, it's very similar to TikTok rhetoric. You appear to be talking about a residential repayment mortgage, so you'll be renting to lodgers (or more specifically an Excluded Occupier, assuming you share facilities) and not tenants (the latter of which require a different housing set up and usually a buy-to-let mortgage). This comes with it's own pro's and con's, the pro's being you can have them out at short notice without needing to drag it through the courts, the con's are that you are less likely to get a long-term lodger than a long-term tenant and you must appreciate that it's not uncommon for lodgers to be people that are unable to get tenancies (e.g. they have or have had financial or behavioral challenges). Those that don't would likely be using it as a short-term stop gap, while they sell their house, for example.

It could be wishful thinking to expect you're going to charge loads of money and have 100% occupancy rate (probably worth checking websites like spareroom to get a gauge on the market rate).

And even if you were fortunate enough to have a 100% occupancy rate, part of the rental income will be going towards utilities and you'll also have to start paying tax on rental income over £7.5k.

Personally, my wife wouldn't ever let us welcome 'strangers' into the house (we had two spare bedrooms, I flirted with the idea for a bit), I think she's probably watched too many TV programs where tenants/lodgers absolutely trash the house for no real reason, but obviously this is the minority.

There was a big thread where someone spoke about their journey with lodgers (I think they'd been doing it all their life), I wish I could find it, it was quite an amusing read. As you can expect, the usual with people coming back drunk at silly-o-clock in the morning and cooking chicken nuggets, someone that is perhaps a tad chore-shy, or someone putting the heating on 'Surface of the Sun' and then putting on shorts and opening their window, or furniture and appliances seemingly going missing.

If you were to consider this, I'd come at it from the perspective that you are buying a house that you want and that you are fully comfortable affording on your own - and there might be a possibility of lodgers as an additional increase stream, but certainly don't rely on it in your mind.

Aiden8889 said:

But I will take what you said about pensions into account, I'd opted out previously because I was always in low paid work so I just didn't see the benefit then I took up AAT and completed that and have a job in Finance that pays better.

I also have an AAT qualification - good for you! Glad things have improved for you.

I appreciate you taking the time for the responses. I suppose I am banking all this on the most ideal scenarios so yeah I probably am being naive and it does sound like something from the Facebook reel playbook.

I've asked my company about the pension today. It's currently 5%/3% but there's a new scheme coming in May 2026 where it will be 5%/5% so I will opt in now and then opt out and into the new one when that comes around.

I should edit the bit about taking it out of my savings, I of course know pension contributions are deducted (as per AAT lol) from gross pay first I just didn't know about being able to take a lump sum out of a private pensions early and you are right I'm essentially throwing ~70 a month in current value away.

I'm going to try make some time to look into these Stocks and Shares ISAs (I don't have a trading 212 cash ISA but that was the plan... I guess not now)

I suppose the next question is when the ISA gets to £85,000 would you start a new one?, as you are only FCFS protected to £85,000.

I could really put my money away for 5 years and who knows, when I'm qualified I might be comfortable and not really keep that cash.

I'll put most of it in but I'll probably keep about £10,000 in a easy access saver just in case my car packs in, need a deposit for a home etc.

Exodi

Aiden8889 said:

I appreciate you taking the time for the responses. I suppose I am banking all this on the most ideal scenarios so yeah I probably am being naive and it does sound like something from the Facebook reel playbook.

No problem, I appreciate you being so receptive. People don't usually respond well to people challenging their views whereas you're clearly open-minded and I think that's fantastic and will prove beneficial for you.

On the lodging idea, I'd encourage you to read a few threads on here, just to get more of a feel about it. 

Aiden8889 said:

I've asked my company about the pension today. It's currently 5%/3% but there's a new scheme coming in May 2026 where it will be 5%/5% so I will opt in now and then opt out and into the new one when that comes around.

Fantastic news! Absolutely smashes any other form of saving/investing.

Aiden8889 said:
I should edit the bit about taking it out of my savings, I of course know pension contributions are deducted (as per AAT lol) from gross pay first I just didn't know about being able to take a lump sum out of a private pensions early and you are right I'm essentially throwing ~70 a month in current value away.

There are several ways to contribute to a pension. It can be taken from either gross pay (confusingly referred to as a 'net pay' arrangement), or more commonly for workplace schemes from net pay (know as 'relief at source', where tax relief is added to your pension pot) or salary sacrifice (which is technically neither as the employer reduces your salary and increases their own contribution).

Aiden8889 said:

I'm going to try make some time to look into these Stocks and Shares ISAs (I don't have a trading 212 cash ISA but that was the plan... I guess not now)

I suppose the next question is when the ISA gets to £85,000 would you start a new one?, as you are only FCFS protected to £85,000.

Fantastic news - definitely worth researching. It's not sensible nor effective to try build your fortunes off savings account.

If you decided to invest, the FSCS protection isn't really relevant to investments. If the provider ever went belly up, they would (eventually) just transfer the shares you own to another provider. You own the shares, they just hold them for you, they couldn't just sell them and put them towards their own debts.

For cash held in an ISA - I would not recommending holding this much in cash in the first place. If you do, yes I'd recommend spreading it across institutes if you want FSCS protection.

Aiden8889 said:
I'll put most of it in but I'll probably keep about £10,000 in a easy access saver just in case my car packs in, need a deposit for a home etc.

That's why it's important to work out your goals before taking any decisions. It's unnecessarily risky to invest if you envisage needing the money in a few years - the markets go up and down (but trend up over the long term) and you wouldn't want to risk them being down if you 'need' the money in the short term. Any money invested should, in my opinion, be planned to be invested for at least 10 years.

I think it's imminently sensible to have an emergency savings pot. You can increase the return on this by cycling the funds through regular savers (several paying 7-7.5%).