Your money questions answered
Andy Webb, one of the UK’s leading personal finance bloggers, answers YOUR money queries on subjects as wide-ranging as pensions, savings and, interestingly, how to get rich quickly.
Andy Webb is the author of award-winning personal finance blog ‘Be Clever With Your Cash’ and the co-presenter of Channel 5's ‘Shop Smart Save Money’ – and a self-confessed “money geek”.
List everything you’re spending. Don’t forget one-off or annual costs like Christmas or car insurance. Compare this to your income and you’ll get a quick idea of how healthy your spending habits are.
Group similar items together, such as supermarket shopping or transport. You’ll quickly be able to see where your cash is going – and decide what to prioritise and where to try cutting back.
Keeping on top of your money doesn’t need to be a chore. Banking apps let you check your balance and transactions at any time. Do this on a regular basis.
It’s also worth automating as much as you can, using Direct Debits or Standing Orders for example, and it can be good to time this for just after payday. So any regular payments, whether that’s a credit card bill or money going to savings, will move out of your account before you’ve got a chance to spend the money elsewhere.
An emergency stash of cash is really important. It’s not just for when the car breaks down or when you need to buy a new washing machine. You also need to be able to cover your essentials if something big happens, like you lose your job or are too ill to work.
There’s no hard and fast rule, but if you can afford it you should be looking at building up a pot which can keep you going for three months.
You’ll need to make sure you can access this money, so don’t tie it up in places where it takes some time to release the funds.
I’d avoid investing this money as you want to make sure these savings don’t fall in value. Of course, once you’ve got your three months’ worth of money you can choose to put additional savings elsewhere and get a bigger return.
That would be great, wouldn’t it? Lots of money and fast. I hate to burst your bubble, but most of us aren’t ever going to get rich. It’s therefore best to forget about any schemes or investments that promise you can and instead start thinking about how much you’d actually need to feel rich. Does that mean you’ve enough money to buy a house, or just that you can go on holiday every year?
If you’re a long way off your idea of rich, then you have a couple of options. Downgrade your expectations, or start working out all the things you can do to be clever with your cash.
This means getting the best value possible when spending money, and increasing your income sources. That could involve starting up a ‘side hustle’ on top of your day job. It takes a lot of graft and a little luck, but it could work for you. But don’t gamble your money on investments or ideas if you can’t afford to lose it.
The smallest deposit you’ll need to get a mortgage is 5% of the total property price. The average UK house price is £231,095, making the average deposit at least £11,555.
It’s worth saving more if you can. The higher the percentage deposit, the lower interest rates you’ll be able to get on your loan. This could save you thousands over the course of the mortgage. I’d aim for saving up a deposit of 20% or more to get access to the best deals.
But how? Well, ignore anyone who says just cutting out avocados on toast will do it. Streamlining your spending is important, but you need to think broader.
Shop around so you're always getting the best deals - from supermarket shopping to your mobile phone contract. Cutting how much you’re paying on rent is worth looking at too, which might mean moving to a less desirable location or property in the short term.
You could also boost your income. Search online for ‘side gigs’ that you can do on top of your day job to make more cash. They might even take off and be a new career.
It’s also worth looking into the government’s Help to Buy schemes, including shared ownership. These can make buying a home more affordable.
Stamp Duty is likely to be the most expensive additional cost, though if you’re a first-time buyer in England, Northern Ireland or Scotland then you might be eligible to cut or reduce how much you pay. The rules on Stamp Duty are different depending on where you live – you can find out more here.
But that’s not the only extra charge. There are quite a few others and they can really add up.
First, your mortgage could come with extra fees, and the lender will probably require you to pay for a valuation too.
When I moved house the next biggest costs were the legal fees which included all the paperwork, searches and the money transfer fee. You should shop around but you don’t want to go too cheap, as it’s often a case of you get what you pay for. I wish I’d shelled out a few hundred more on our solicitor. There’s also a Land Registry fee to pay.
Finally, there’s the cost of a survey. This is optional but it’s worth paying to ensure there’s not a problem with the property. The more you pay, the more detailed the survey.
All in all, it’s worth factoring in at least £2,000 on top of Stamp Duty. Possibly more.
Everyone wants to buy. We’re a little obsessed by it as a country. And yeah, if you can afford it there are obvious benefits to getting on the ladder. But that doesn’t mean renting is bad.
The flexibility of renting is often undervalued. In my twenties I was able to take a couple of career breaks and go travelling. I simply moved out and put my stuff in storage. That’s harder to do when you have the mortgage to pay.
Living with friends is often easier when renting, and you tend to find renting more affordable than buying in popular areas.
And being a homeowner isn’t necessarily cheaper than renting. Boilers can break and roofs can leak – and I’ve had to pay to fix them both.
As much as you can!
Work out how much you’d need to live the life you want when you retire. If you’ve paid off your mortgage then you won’t need as much, but if you’re renting those costs will continue. Though you’ll be able to cut out the cost of commuting, you might want to add on some funds for holidays. And so on. Which? Magazine estimates you need between half and two-thirds of your final salary after tax to maintain the same lifestyle into retirement.1
So how far away are you? The Money Advice Service pension calculator will show you if there’s a shortfall in how much you’ll get versus what you think you’ll need.
If it’s less, then you need to start paying in more now. If your employer offers matched contributions, make sure you take advantage.
1 Source: https://www.which.co.uk/money/pensions-and-retirement/starting-to-plan-your-retirement/how-much-will-you-need-to-retire-atu0z9k0lw3p
I’m lucky that I’ve only got three different pension pots from two different employers. So far. And I can just about keep track of those. But if you’ve moved jobs more often there’s a good chance you have more pension pots, and may have even more before you retire.
To track down forgotten ones you should get in touch with your old jobs. You’ll need your National Insurance number and the dates you worked there. If you’re not sure of the contact details, then use the government’s pension tracing service. They’ll give you details of whoever manages the pension, and you can contact them for further information.
Yes, it sounds like a bit of faff, but it’s worth doing this now, and making sure they have your correct address, rather than waiting until you retire!
You can also look at merging different pensions into a single pot – but should talk to a financial advisor first.
It’s a risk. For a start, if you’re living in the property when you retire you’ll need to sell it and downsize in order to have cash to live off. And that’s if you can sell. Plus as medicine advances and we all live longer, that money could run out before you die.
That’s not to say you should dismiss the idea of investing in property. It’s just that it’s better to have a few different sources of revenue.
Pensions are still the best option for most people. For a start you get free money from the government in the form of tax relief. Basic rate taxpayers essentially get 20p added for every 80p they contribute to their pension. Plus there should be more security as the main way to cash them in is through an annuity – a guaranteed income for life. You can also take out a lump sum of cash tax-free so there’s some flexibility too.
Pensions can be complicated. If you’ve got questions, the Pensions Advisory Service offers a free live chat service you might find handy.
Interest rates are influenced by the ‘base rate’ which is set by the Bank of England depending on what’s happening in the economy. Generally, a low base rate is good for borrowers but bad for savers. And vice versa.
Simple enough right? It can be a little bit more confusing in practice, in part down to how the rates are calculated. You’ll usually see APR and AER written after the rate.
APR stands for Annual Percentage Rate and it’s what you’ll see on borrowing. This also includes any charges and fees. So borrow £1,000 for a year at a rate of 19.9% APR and it’ll cost you £199. But pay it back faster and you’ll pay less. If it also says “typical APR” it doesn’t mean you’ll actually get that rate – it could be higher.
AER is Annual Equivalent Rate and is the figure added to savings. So a rate of 3% AER means you’ll get 3% in interest added to your savings after 12 months. If that was £1,000 it would be £30. But if you only had it for six months, you’d be looking for roughly half of that.
It really helps me to have a goal so I’m motivated to prioritise. It was easy to cut out a lot of spending when I knew that money was going towards things like big holidays, my wedding and my first home. Then once you’ve got into the habit, it’s easier to keep going.
To get started, work out how much money you’ve got to spare after all your essentials every month. Then factor in some cash for the fun things – don’t go cold turkey or you’re more likely to relapse into a big spending splurge. Transfer anything left after that into savings, and set up a standing order to do this every month.