Financial Plan for 26 Year Old
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Jk920
Posts: 13 Forumite
Hi all, I made another thread here before but I don't think I explained myself very well so took some time to think about what I wish to know and that is how to ensure I put myself in the best financial position for the future i.e. 30s and beyond. My goal is to educate myself and make financial plans to set myself up for the future (provided nothing bad happens).
Details:
I am a 26 year old female and currently still live at home so am able to save quite aggressively. By the end of this year I will have saved £64k, I've been working for 3 years from December and they have been low paid jobs until earlier this year where I got a £30k role. My aims are a lot higher but it is a stepping stone I very much needed. I have had a pension since I started working but as I have not earned high salaries, it will be £5000 by the end of this year. There is a total contribution of £180 per month at the moment.
I currently have a good credit score (993/1000), no debts and currently my savings are in an 2 year fixed term ISA with an interest rate of 1.5%. I have been able to top this up on a monthly basis so my interest has increased and will give me £80 on top of my take-home (covers majority of my travel next year). I'm planning to do another year of very aggressive saving next year aiming for £23k which will give me a total of £87k (maybe slightly more if I get a bonus). I'm very grateful to have set myself up where I do feel somewhat secure but I have also been very conscious of my finances and I'm really pleased to see it build.
I'm going to increase my income by new jobs and also learning different skills as I won't be living at home forever so want to make sure I increase my security in this area. I'm also planning to try a side hustle with some skills in another area that I've been working on for the last 2 years. My question is what advice would you give to someone in my position as I want to keep growing in my financial life. I have heard about financial independence which has also really interested me, any advice if this is possible?
I'm not too sure when I buy a place as I want to ideally keep some as my personal savings rather than spend all of it on a deposit.
Details:
I am a 26 year old female and currently still live at home so am able to save quite aggressively. By the end of this year I will have saved £64k, I've been working for 3 years from December and they have been low paid jobs until earlier this year where I got a £30k role. My aims are a lot higher but it is a stepping stone I very much needed. I have had a pension since I started working but as I have not earned high salaries, it will be £5000 by the end of this year. There is a total contribution of £180 per month at the moment.
I currently have a good credit score (993/1000), no debts and currently my savings are in an 2 year fixed term ISA with an interest rate of 1.5%. I have been able to top this up on a monthly basis so my interest has increased and will give me £80 on top of my take-home (covers majority of my travel next year). I'm planning to do another year of very aggressive saving next year aiming for £23k which will give me a total of £87k (maybe slightly more if I get a bonus). I'm very grateful to have set myself up where I do feel somewhat secure but I have also been very conscious of my finances and I'm really pleased to see it build.
I'm going to increase my income by new jobs and also learning different skills as I won't be living at home forever so want to make sure I increase my security in this area. I'm also planning to try a side hustle with some skills in another area that I've been working on for the last 2 years. My question is what advice would you give to someone in my position as I want to keep growing in my financial life. I have heard about financial independence which has also really interested me, any advice if this is possible?
I'm not too sure when I buy a place as I want to ideally keep some as my personal savings rather than spend all of it on a deposit.
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Comments
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Best advice is never stop learning. Read, read, read so any decisions you make you know exactly why you are doing them. Learn about investing, minimising tax etc.
£30k salary is £24k take home assuming no student loan or pension sacrificing so I think you will struggle to save £23k, but don't be disheartened if you manage to save for example £20k - it's still very good.
Look into what you can do around your pension more. If you can save so aggressively it may make more sense to contribute more to a salary sacrifice pension and take advantage of dodging the 20% tax by doing so. You already have enough for a deposit for a house so whilst more deposit is better, it might not give you the best financial results if you could use your money better elsewhere. If you're considering financial independence, then it's a no brainer to maximise pension because there's going to be 30 odd years of your life where you're drawing from it!
Other advice: When you get a bit older don't get sucked into needless spending if others around you are buying nice cars and what not.0 -
MaxiRobriguez wrote: »Best advice is never stop learning. Read, read, read so any decisions you make you know exactly why you are doing them. Learn about investing, minimising tax etc.
£30k salary is £24k take home assuming no student loan or pension sacrificing so I think you will struggle to save £23k, but don't be disheartened if you manage to save for example £20k - it's still very good.
Look into what you can do around your pension more. If you can save so aggressively it may make more sense to contribute more to a salary sacrifice pension and take advantage of dodging the 20% tax by doing so. You already have enough for a deposit for a house so whilst more deposit is better, it might not give you the best financial results if you could use your money better elsewhere. If you're considering financial independence, then it's a no brainer to maximise pension because there's going to be 30 odd years of your life where you're drawing from it!
Other advice: When you get a bit older don't get sucked into needless spending if others around you are buying nice cars and what not.
Maybe I calculated it wrong as I forgot about pension, I pay £80 monthly into that. I also don't have student loans. Thanks for the heads up!
And yes this is a big thinker - whether to really increase my pension a lot now as I could still potentially take £1400 home (and put £500 monthly to my pension if I'm able to) and still put that towards my house deposit whilst also building my pension. One scary aspect about this is I have to wait as it will potentially be locked in until retirement age whereas now I can keep investing it in my ISA and have it with me rather than locked away. It's still being invested into an ISA but not locked away for 30 years or so. This may just be ignorance on my part as I ideally wanted my savings as:
1) Emergency Fund
2) House Deposit - I'm not even sure how much I wish to put into this as I'd want to clear the mortgage as efficiently as possible but it does not seem sensible to devote ALL my savings to a deposit as I will need some extra for furnishing etc. on top of the deposit and personal savings.
3) Financial Independence - Setting aside some money into building my own savings on top of...
4) Pension
Again, please excuse my ignorance. I'm hope I'm not coming off as a person with silly ideas, I do need some guidance of what is possible. Of course, I don't know what the future may hold but I want to do my best to keep my finances under control.
Also can you suggest any books? I'm well known with personal development so have read a lot of books. My top ones are The Slight Edge, I've read Secrets of the Millionaire Mind.0 -
Your emergency fund and house deposit you already have. Your emergency fund only needs to be four figures, potentially less if you have a 0% credit card that you could clear in time, which it sounds like currently would have no problem with.
Financial independence isn't just about money now, it's about getting to a position whereby you could never work again if you didn't want to because your investment income would cover you for the remainder of your life. This is going to involve from 60 through to your 90's - aka the "locked away" pension ages. Don't be scared to lock money away either, you'll *want* to be doing that in your ISA because the longer you're invested the more money you'll make (read about compounding). The only difference then between ISA and Pension is you could if you *needed* to take money out the ISA, but if you've planned well you probably won't want to. Read up on tax efficiency of pensions, it makes a big difference to your overall wealth if after multi decades you're getting a free boost (6.25% is the figure) on your money.
I think one of the big things you'll have to consider is whether you want to start a family. That would mean you'd want to be in your own house (probably with mortgage) and would come with additional financial demands that bringing up children does. Lots of FIRE people don't have kids - it makes life a lot cheaper.
Don't get too wound up in being financial independent, just spend a little, save a lot and make smart investment decisions over a number of years. Get rich slowly.0 -
MaxiRobriguez wrote: »Your emergency fund and house deposit you already have. Your emergency fund only needs to be four figures, potentially less if you have a 0% credit card that you could clear in time, which it sounds like currently would have no problem with.
Financial independence isn't just about money now, it's about getting to a position whereby you could never work again if you didn't want to because your investment income would cover you for the remainder of your life. This is going to involve from 60 through to your 90's - aka the "locked away" pension ages. Don't be scared to lock money away either, you'll *want* to be doing that in your ISA because the longer you're invested the more money you'll make (read about compounding). The only difference then between ISA and Pension is you could if you *needed* to take money out the ISA, but if you've planned well you probably won't want to. Read up on tax efficiency of pensions, it makes a big difference to your overall wealth if after multi decades you're getting a free boost (6.25% is the figure) on your money.
I think one of the big things you'll have to consider is whether you want to start a family. That would mean you'd want to be in your own house (probably with mortgage) and would come with additional financial demands that bringing up children does. Lots of FIRE people don't have kids - it makes life a lot cheaper.
Don't get too wound up in being financial independent, just spend a little, save a lot and make smart investment decisions over a number of years. Get rich slowly.
Firstly thank you for such great advice! This is giving me lots to think about, I know I don't want children but I ideally would like to get married and be settled.
One question regarding the pension and ISA which confuses me. If I put my money away into a pension as I am now, I'm saving my money into my fixed term ISA aggressively allowing it to compound which I've been doing since I started working, it's grown as my savings has grown but I never once considered taking it out, I've just consistently built it. Even now, I'm contributing to both with the same end goal - building my finances for the future - both are compounding.
If I invest a lot more money into my pension, that means I have to wait until 60+ to access it, but does that not ruin the chance that if I manage to save a lot on the side in personal savings such as investing into an ISA as I am now? I know I'm not keen to touch it. You're right, forget about financial independence, let's just focus on building the financial pot first, so that idea is gone.0 -
Financial independence is usually something aimed for later in life which gives people choices on whether to retire early or go part time or SE and have the luxury of knowing that you have enough income to live off whichever option you choose. I don't think this is something for you to think about now as you are financially dependent on your parents for the roof over your head. If that changed you would have to rent or buy somewhere so you are not in a position to go there yet.
You have a great opportunity now though to set some solid financial goals and go some way towards achieving those. Those of us who think long term would suggest pensions, stocks and shares isas, sipps. You are right though in saying that you will be restricted on when you can access pensions so I would not put all your eggs in one basket. Maybe look to increase your pension payment to maximise your employers contribution.
If you are planning on buying a property have you explored HTB or LISA? Obviously the more you save, the lower your mortgage will be and you can budget for the costs and furniture separately and keep that back. Buying a house is a big decision so I would educate yourself about that by researching the area you want to live and gauge how much you need to save for a deposit and maybe visit a few financial institutions or a broker for a AIP.
In the meantime read up about investing and pensions as that is something I wish I had done much earlier in life. Although we are well set now this is chiefly because we prioritised my husbands pension and I think we should have also addressed the imbalance in mine as I worked part time while bringing up children so my pension is much less than his.
It is refreshing though to read of a young person who has saved a substantial sum rather than being in debt so you have made a good start.I’m a Forum Ambassador and I support the Forum Team on the Debt free Wannabe, Budgeting and Banking and Savings and Investment boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.0 -
enthusiasticsaver wrote: »Financial independence is usually something aimed for later in life which gives people choices on whether to retire early or go part time or SE and have the luxury of knowing that you have enough income to live off whichever option you choose. I don't think this is something for you to think about now as you are financially dependent on your parents for the roof over your head. If that changed you would have to rent or buy somewhere so you are not in a position to go there yet.
You have a great opportunity now though to set some solid financial goals and go some way towards achieving those. Those of us who think long term would suggest pensions, stocks and shares isas, sipps. You are right though in saying that you will be restricted on when you can access pensions so I would not put all your eggs in one basket. Maybe look to increase your pension payment to maximise your employers contribution.
If you are planning on buying a property have you explored HTB or LISA? Obviously the more you save, the lower your mortgage will be and you can budget for the costs and furniture separately and keep that back. Buying a house is a big decision so I would educate yourself about that by researching the area you want to live and gauge how much you need to save for a deposit and maybe visit a few financial institutions or a broker for a AIP.
In the meantime read up about investing and pensions as that is something I wish I had done much earlier in life. Although we are well set now this is chiefly because we prioritised my husbands pension and I think we should have also addressed the imbalance in mine as I worked part time while bringing up children so my pension is much less than his.
It is refreshing though to read of a young person who has saved a substantial sum rather than being in debt so you have made a good start.
Thank you for your response. I think financial independence is very interesting but also strongly agree with what you said, I do hope to make it a reality in my future and actually build/plan for it so that's why I've asked about that...not immediately of course but I think it would be extremely beneficial to educate myself of how to actually get there when I'm older.
Thank you! That answers my previous question in my post because I was worried if I put a lot of money into my pension, I also wanted to build my own pot of personal savings into an ISA on top of my pension.
Thanks, to be fair I just find myself to not be into the consumer culture we are surrounded by and also have planned for the future when I started working.0 -
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Have you also thought of diverting some savings into a S&S ISA to start your compounding in that area as well.
JDJ0 -
You are right at your age to try and find a balance between saving for the short, medium and long term Just to put some simple figures on the pension vs S&S ISA vs cash savings for you :That answers my previous question in my post because I was worried if I put a lot of money into my pension, I also wanted to build my own pot of personal savings into an ISA on top of my pension.
Pension - You contribute £1000- taxman gives you tax relief of £250 . You pay some tax when you take money many years later . Overall benefit is 6.25% . Depending on what investments you have in the pension you should see average growth of 2 to 5% above inflation . Currently you can not access any money until age 55 and this may increase in future . If you ever become a higher rate taxpayer the benefit is 27.5% !
S&S ISA - With same investments as in the pension you can expect the same growth. However ideally you should have a 10 year time frame to allow for short term ups and downs in the markets . You do not get the 6.25% benefit but money is accessible if needed, but ideally should be left alone if possible.
Cash ISA/cash savings . Normally the interest earned is below inflation, so a kind of negative growth in real terms . However is easily accessible and best for short term needs ( 2 to 3 years )
LISA - Govt adds bonuses but there are rules about how you can use them . You can have a cash LISA or a S&S Lisa.0
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