Recenlty I made a post here about a debt issue that I thought I had and a lot of incredibly helpful people basically told me I was being silly over silly amounts of money. Which they were right. I have been able to bring my £1.7k worth of debt down to about £900 and this will be paid off in the next month or so.
So now my next question is: How do I actually save for a house?
I have a LISA which I do contribute to, but not as much as its money that’s then locked away until I decide to buy a house. I no longer have a savings as I used my savings to pay off the debt.
Here’s a quick idea of the money I have:
I earn £16,000 a year before tax. I pay about £450 a month in outgoings like rent, car repayments, phone etc. I no longer have direct debits for credit cards as they’re mostly paid up now, aside from one.
Me and my partner are really eager to settle down now, so we want to start saving before it’s too late. What ideas or saving tips have you guys got that work?
So at £16,000 thats about £1200 a month? Outside of the £450, what are you spending on other expenses - your ‘essentials’ like food/drink/etc, and more fun things?
Have a look at what you can legitimately save once all those figures have been accounted for too.
On the LISA front, these are a great mechanism to get a wodge of free cash, if you can afford to tuck the money away for an undetermined amount of time, and if you don’t want to buy before the LISA matures. (i.e, more than a year away).
Personally, with my LISA, I save what I can through the year and contribute to it just before the annual cut off - that way I still have the money if I need it ‘in year’.
On how aspect, once you’ve got your monthly budget sorted, I personally just chuck the savings into a Cash ISA pot in Monzo; it’s growing, it’s locked away, but I can access it easy enough. Other good suggestions would include a Marcus account too - which I think still has market leading interest, and its easily accesible.
While you’re saving though, my personal suggestion is to think of the ‘opportunity cost’ of buying a house at the moment - does tying yourself into a 25+ year mortgage right now make sense; are there any skills development that you want/need/might consider that would enhance your savings rates in future, etc? Long term do you want to live where you would buy.
Good luck on the journey
Edit: Oh and just to add - personally, I would also be aiming to grow an emergency fund of some sorts (common wisdom says 1-3 months salary) - so at least if something does happen, you have a slush fund you can draw from if needed. Or rather, just consider ‘protecting’ some of your savings as your building your deposit.
How much to Save = entirely depends on your income, the house you want to buy, and when you want to buy it?
At minimum you’ll need a 5% deposit, 10%+ for better rates. Plus a good wodge for all the associated fees. What does that mean in terms of actual £ amount?
And Savings Methods - beyond “Put £4k in the LISA and the rest aside”, there’s not much more I think to cover?
Edit to add:
And typically, when mortgage providers determine your mortgage affordability, they’ll take a rough number of Combined salary x 5 (approx) - so use that base as to what house you may get (now) and how much you need for deposit.
Understand the worry about locking away money in your LISA, in case you need it in an emergency.
I’d put some money into a Marcus easy access account and some into your LISA each month. Then at the end of the tax year, assess how much of your £4k allowance you’ve used and top-up your LISA if you can, still leaving a contingency fund in your easy-access savings.
Step 1 - Create/update your budget - use a spreadsheet/paper/whatever but look at your regular outgoings and figure out how much ‘extra’ money you have.
Step 2 - If you were out of work for 3 months, how much do you need to cover living (at a reduced rate, as you wouldn’t go out, eat cheaper etc). That’s your first goal. Now put whatever you can into an easy access account a la Marcus until you’ve got that to the level you think you’ll need.
Once you’ve done that.
Step 2 - Create a second savings account and starting putting whatever you can into that until you have the amount needed (as per other advise above).
You are only 20, so give yourself time to do this, it won’t all happen this year, but you are planning for your future (and trust me, I did NONE of this at your age you are ahead of the game).
An emergency saving is my 1# at the moment before I do start saving properly. So I will take note of this You’ve given me loads of good info with this and the paying off my debt so thanks
I guess another thing to consider is interest rates.
Most savings accounts have interest rates that are a good deal below inflation, so the money you have sitting in those accounts is losing value
It might be worth considering putting some of your savings into some sort of investment wrapper - a stocks and shares ISA or similar. I wouldn’t put it all in, and perhaps now isn’t the best time to be investing, but if you want the value of your house fund to grow, and you don’t think you’ll be in a position to buy for at least 5 years, having some of your money in a place where it is actually growing in value is possibly a good idea
Don’t put your emergency fund in stocks and shares, and don’t have all your savings there, but having some in a higher risk/reward account seems like a good idea to me (it’s what I do)
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Anarchist
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True. Additionally, if the savings are specifically for a house purchase, the inflation rate to be concerned with is house price inflation for the particular type of property in the particular area you are looking.
A S&S Isa was a thought however im trying to find something which would be worth piling money into. Not loads as you said, but maybe a bit at a time. My main priority at the moment is building the emergency fund and getting some more money into my LISA.
Do you have one? If so what one do you have or what would you recommend?
Edit: Would also like to add that although I am a Monzo customer, I have looking into switch to another bank to reap the benefits. First direct have an offer at the moment with a 2.75% savings account. But didnt know what I should do with this, but I can get an extra £100 for switching & £100 for leaving?
If the long term option is a better one then yes, switch. But don’t do it for £100. What’s the in % terms of what you are aiming for? Less than 0.01%? Not worth the effort if you ask me (I don’t have a set rule for what IS worth the effort but given your long term goals I’d focus on this rather than a quick £100 here or there).
That 2.75 is where you’ll make MORE than £100 over the term though, now THAT is worth the effort.
And I’m not putting him off, I’m offering MY opinion which is what he asked for. It differs from yours, so now he has two opinions. He seems like a smart enough guy to read them both and make up his own mind.
It’s almost like this is… an Internet forum and people post their opinions based on their own life experience? Chill man, more important things going on right now!
Exactly. It’s not an either or between 1.25% (lol) and £1000 in FSS bonuses. That’s a very decent leg up for any 20 year old and it’s madness to suggest leaving it on the table.
What you said was “Not worth the effort if you ask me”.
Presumably you think that them going to work is “worth the effort”? Name any other way a 20 year old can get close to that hourly rate?
What does this mean? £100 is 5x more than what you said of a typical £20k deposit and if you take all the money that’s on the table you’re already 5% there.
It looks like you have messed up badly on your maths but I may be wrong.
Personally, I’d share the same opinion as @gmclean on the whole switcharoo game, right now, for me, it’s not a worthwhile endeavour.
But it might be for others:
I just had a quick look and it seems these are the offers at hand.
Bank
Bonus
Conditions
NatWest
£175
Switch by 2/4,£1,250 pay in, No cash back since Oct 2017, Paid in June
HSBC
£175
£1,750 pay in, No HSBC account since 1/1/17, Paid 30 days post switch
RBS Select
£175
Switch by 20th April, Pay in £1500, Paid by 19 June
First Direct
£100
Pay in £1,000 in 3 months, plus 2DD, Can never have had an FD account, Paid within 28 days of switching and paying in £1k
Nationwide
£100
Need to be referred, 30 day payment after switching, Need to wait 3 months after to close the account or they can recoup the fees
Total
£725
(You’d need two accounts to ‘donate’ to maximise)
Timings wise, you’d need to switch to NatWest (or RBS) first, wait until June, switch to HSBC, wait 1 month (July), switch to First Direct, wait one month (August), and then get a friend to refer you to Nationwide, and get your final sum in September.
You also need a “donor account”, to switch from, and have 2 direct debits in there too, plus ensure you pay in the relevant amount each month - which means transferring the money in then out.
It’s a totally easy way to get a good chunk of cash if you meet the conditions, it just takes time and planning.
