Author Topic: LOST- UK to buy or not to buy and invest  (Read 2365 times)

Burgess94

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LOST- UK to buy or not to buy and invest
« on: November 23, 2016, 05:06:10 AM »
Details

Age- 22
Gross Salary- £19600 approx (self-employed)
Tax @20%- £3920
Net salary- £15680
Total expenses- £10,247.88
What's left- £5,432.12
Assets- £800 in bank and £360 in an investment portfolio

After finding this excellent blog 3 months ago, I've paid off £500 of credit card debt (now debt free) and have stopped living pay check to pay check.

I am currently living with my dad and paying £200 per month for rent and bills with the intention to save to buy my first home. Not knowing how strict my dad is with the time frame but, he has given me 2 years before I have to spread my wings and leave.

I have been researching about the eighth wonder of the world... COMPOUNDING INTEREST. Also, with all these videos with RENT vs BUY, I wanted a mustachians opinion on what's best for me and my quest for financial independence.

My question: do I save intensively to buy my first home or consider the prospect of renting and focus on building my portfolio (with the power of youth and compound interest on my side)?

BUYING- the best help yo buy ISA offers 2.27%AER and 25% bonus when it comes to buying. Your first months max deposit is £1200 then a max payments of £200 each month. Finally being capped of at £12,000 max in the pot.

PORTFOLIO- with no lump sum or in fact any real money to start investing into my "freedom fund" I download an app called "Moneybox". Long story short I automatically invest 20% of my income (£80) every week with my asset allocation 15% cash fund, 15% property shares fund, 70% Global Shares fund with my intentions being over the long term I'm ready to take the blows that come when following volatile markets.

What would you do if you were in my current situation? Any advice would be greatly appreciated! Many thanks

Ryan

cerat0n1a

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Re: LOST- UK to buy or not to buy and invest
« Reply #1 on: November 23, 2016, 06:56:26 AM »
Gross Salary- £19600 approx (self-employed)
Tax @20%- £3920

Sure about your tax payment? Your first £11k of earnings is tax free, so I'd have expected tax to be more like £1600 per year plus a few hundred in national insurance. If you're self employed, you can potentially offset a bunch of stuff against your income too.

Quote
BUYING- the best help yo buy ISA offers 2.27%AER and 25% bonus when it comes to buying. Your first months max deposit is £1200 then a max payments of £200 each month. Finally being capped of at £12,000 max in the pot.

Seems to me that a lot depends on house prices where you live. No-one earning less than £20k is buying a house anytime soon here in Cambridge. If you can get a mortgage for say 3.5x earnings (£70k) and add on the savings you might get in the ISA in a couple of years time, would that buy you anything where you are?

Who is your £80 per week invested with - worth checking that you aren't paying over the odds in fees?

You've made great progress so far, stick at it.

Playing with Fire UK

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Re: LOST- UK to buy or not to buy and invest
« Reply #2 on: November 23, 2016, 07:08:44 AM »
You can think first about how much house/living space you need. If it is just you (or you and a partner) then buying a house and letting out the extra rooms could be cost-efficient. As Cerat0n1a says it depends where in the country you are and whether you are planning to stay there. I'd avoid buying a home if there is a chance you'll want to move on within 5-7 years.

Great work on paying off your credit card debt. Keep on saving, you don't need to make any decisions yet.

Playing with Fire UK

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Re: LOST- UK to buy or not to buy and invest
« Reply #3 on: November 23, 2016, 01:46:49 PM »
I'd caution against the Lifetime ISA being a slam dunk.

For many early retirement folks, the S&S ISA is a better choice for early retirement and a pension works better for the later stages. Pensions can (currently) be accessed slightly earlier than the Lifetime ISA. If you can invest via your payroll you'll save the 20% tax plus maybe 12% NI, which compares favourably to the 25% lift on the LISA (not all the pension will be taxed on the way out).

There are some people that the LISA will work well for; if you know that you will be buying a house at some point it can be a great option.