Financial considerations for the 18 to 30s
The high cost of living
Day to day living can be expensive, especially if you live in London. Taking control of your money means knowing where it’s going. It’s all too easy to let your money fritter away without any real sense of what you’re spending.
The key is to sit down and work it out. It’s a good idea to write down your spending, then you can review it and see where you could manage money better.
Listed below are the main expenses to expect:
Household expenses – phone, gas and electricity, broadband, digital TV, insurance, food, toiletries, laundry, cleaning products, household goods and kitchenware
Clothes – plus shoes and accessories
Transport – running a car, taking public transport, taxis
Savings – pension, investments
Debts – credit card repayments, loan repayments
Work – union fees, subscriptions, work clothes, transport, lunch
Education – student loan repayments, evening classes, books, stationery
Luxuries – cigarettes, alcohol, magazines, beauty treatments
Healthcare – prescriptions, optician, dentist, vitamins, painkillers and medicines
Entertainment – drinking, eating out, clubbing, cinema and theatre, CDs, books, DVDs and games
Sport and fitness – season ticket, gym membership, team membership, sports equipment
One off expenses – presents, holidays, large purchases, like a new fridge or bike
How to avoid debt
It’s easy to sometimes feel you're losing control of your finances. You’re not alone.
In the UK, the number of people in debt is growing. There’s now more than £1 trillion of debt, which is over £17,000 for every man, woman and child in the UK.
On top of it?
If you don’t have a debt or are handling the repayments without any dramas, you're in a good position. Here are some tips for making sure you don’t creep into debt:
Plan for the big events - weddings, cars, setting up home and going to university can all take a massive chunk of your money. Start planning as soon as you can.
Save for a rainy day - keep in mind that sickness or injury could seriously affect your finances, especially if you’re a contractor or casual worker and aren’t covered while on leave. (Also, make sure you're insured – don’t let a skiing injury in France destroy your bank account.)
Consider the future - it might seem a lifetime away, but you will one day retire and living in poverty won’t be fun! To maintain a high quality of life, you really need to save regularly from a young age.
Think about your relationship - if you get married or move in with your partner, it’s important to discuss your approach to money. Also, consider what will happen if you and your partner decide to break up.
Plan your spending - you can save by cutting down your expenditure in certain areas of life to work out your budget.
If you are already in debt, our debt advice centre has lots of information and advice to help you.
Savings advice
Saving money is a smart way to prepare for the future.
Short term savings
It’s a good idea to have some money put aside in case you should suddenly need it. You might, for example, need to get something fixed, like your car or washing machine. Or you may wish to save for your holidays.
It’s a good idea to separate your savings from your day to day money. You can often get a savings account that offers a higher rate of interest than a current account. Make sure you can access it quickly if you need the cash suddenly.
Try to put a small amount of money into it regularly. You may be able to set up an automatic transfer from your current account. If you coincide this with pay day, you’ll hardly notice the money is gone.
Long term savings
Saving for life’s big events, like buying a house or retiring takes a bit more time. You may like to invest your money so that you earn more interest.
Deciding where to invest your money will depend on how much you have and your approach to risk. Rather than leaving your money in a bank account, you could earn more interest by investing it. You have a few options, such as an Individual Savings Account (ISA), property or shares.
You should see an independent financial adviser to discuss the best option for you.
Why have a pension?
When you retire you will still need a regular income to live on, which is the reason you need to start saving for a pension well ahead of retirement.
There are two types of pension schemes: state and private.
The state pension scheme is set up by the state using National Insurance (NI) contributions. It will only provide you with a basic income, so you may want to supplement it with your own savings.
If you retired today (you would have to be 60-65 to do this) and qualified for the full state pension, your weekly income would be:
- Single person: £82.05
- Couple: £131.20
(As of April 2006)
You can also get a private pension scheme, which is set up by you or your employer. You make direct payments to an organisation which invests the money on your behalf.
As there are many different pension schemes available you should talk through your options with an independent financial adviser before taking out a private pension.
Getting on the property ladder
Buying property can seem an impossible dream. But there are incentives for first time buyers to join the market.
- Interest rates are lower now than they have been for more than 30 years
- Sellers like first time buyers because they don’t have to wait for your own sale to go through too
Considerations
How much can you afford? It’s unlikely you will be able to afford your dream home straight away, but it’s better to get onto the property ladder than hold out until you can afford the perfect place.
Lenders will assess how much to lend you based on your deposit and income. Find out how much you can borrow before you start looking.
The costs
Besides the deposit, there are other expenses involved in buying a property.
Stamp duty - if the property value is more than £125,000, you are subject to this government tax
Valuation fee - your mortgage lender will carry out a valuation of the property, which costs about £150
Arrangement fee - your mortgage lender may charge you a fee for completing the transaction
Legal fees - your solicitor or conveyancer will charge you from £400 for their services, plus land registry costs and VAT
You will also need money for moving, furnishing, management agency fees, any renovations and insurance.
Find out more
If you’re looking to see how much properties cost, where the best area is to buy and view properties currently for sale, visit the property and local area specialists UpMyStreet.com.
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