A case to look at: Mr. M. wants to move out of his parents’ house into his own home in London. He is aged 25. Until he clears his £5,000 debt, he is not moving. He also has plans for his retirement.
He earns £27,000 a year, with monthly outgoings of £500 in tax and national insurance, £80 in regular savings, £220 to his parents, £360 in travel expenses, as well as around £1,100 a year on sunshine holidays. He owes £3,500 on credit cards and £1,500 on utility bills. No pension provision. He has around £3,000 in an ISA and £3,500 in a share-save scheme, and no mortgage.
What should he do? Well, clear his debts first. Then start keeping track of money being spent. Always shop around for the best deal on any insurance or utility bills, or mobile phone tariffs.
Mr. M. expects to have an initial bill of over £1,000 for his rent and deposit in London. Maybe he should delay his move by a few months to give him more time to maximise his debt repayments and build up his savings. Get himself in a better position.
And here’s the real part of this; Mr. M. hopes to retire at 70 with a pension fund of £500,000, which he hopes will last him 15 years in retirement. But he has no retirement savings and doesn’t understand what is available to him.
This fund of £500,000 for retirement is the equivalent of a gross income of around £17,000, which could cost around £460,000 in today’s money, if he plans to buy a pension annuity which will pay out a monthly income until he dies. To achieve this he needs to make contributions of around 20% of his pay, the equivalent of £400 a month gross, with tax relief he would pay £320 a month.
And that’s the point. Here’s a young lad with plans. To achieve his aims he now knows how expensive it could be.
