Author Topic: Reader Case Study - Barely a bit of fuzz but I'm working on it.  (Read 4489 times)

grace

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Reader Case Study - Barely a bit of fuzz but I'm working on it.
« on: October 16, 2013, 06:24:41 PM »
Income: 1160per month after taxes and deductions from my job in a major UK bank. Sometimes with overtime added on but that's incredibly variable.

Current expenses: I'm essentially going to show you my budget here, because I'm using one just to get my expenses in line so I can track my spending properly and refine as and when needed.
Rent (I live with my mum so this is a catch-all for utilities): 250 p/m
Mobile phone: 35 p/m (in a contract until next year)
Bus ticket: 58.50 p/m
Phone insurance: 5.99
Spotify: 9.99
Netflix: 5.19 (ish. I actually have American Netflix from some sneaky browser tricks so my monthly payments can be weird)
Food for/while at work: 50 p/m
Date nights: 50 p/m
Spending money: 50 p/m
Clothes: 20 p/m
Make-up, toiletries and other essentials: 15
Travel (outside of the bus ticket): 20
Misc: 15
DVDs & games: 10 p/m
Total: 599 p/m

When I save the rest, that gives me a 51% savings rate, not taking into account any overtime I might do.


Assets: 250 that I have just moved into a Regular Savings account that I've started to pay 250 per month into in order to get my emergency fund gathered up. Currently paying a bonus rate of 3% up until October 2014.
120 in my current account.

Liabilities: -114 into my overdraft on my student account. Currently interest and fee-free for the next two years at least, so while I'm trying to clear it and close the account and use just the one current account, I don't feel there's really any rush to do so.
0 balance on my credit card that I use only to boost my credit rating for when I end up getting a mortgage.


And now for the questions! I'm 19 so I'm aiming for a reasonably early retirement once I've got myself established with a reasonably sized house.

First question: Can anyone spot anywhere I could optimise a bit more with my monthly spending? Biking is categorically not an option due to being 25 miles away from my work place. Moving to somewhere closer is also not an option because rent in my city can really sting the bank balance on an income as low as mine, my partner can't afford to move in with me, and I have zero savings. Moving closer and getting a bike are things I 100% intend to do as soon as I can afford to do it. Until now, bus it is. I think I've trimmed as much as I can but an outside perspective from more mustachio'd people than me would be a great help.

My second question is: what do I start doing first? I could save up for the down payment on a mortgage as quickly as possible in the highest rate savings account I can find. I worked out that if I continue saving 500 per month, I'll end up with 30k in cash in 5 years (which is not taking into account inflation or interest rates on accounts). Because I'd be using it for a house deposit, I've got options in terms of where to put the money because I can afford to tie it away for a fixed term, which means higher interest rate potential. This is a conservative estimate because I do intend to progress, or at least get paid a bit more money along the way in my job in the form of raises, bonuses or just a straight up promotion and anything extra from these sources would be tipped directly into savings.

So do I get scrape together the downpayment as rapidly as possible before looking at investing the money? Or do I split my efforts between the two and increase the time before I get back out on my own?

If anyone needs a touch more information regarding any of what I've said here, let me know and I'd be happy to provide.

lauraredcloud

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #1 on: October 16, 2013, 06:56:00 PM »
I am American and I don't know what tax-advantaged savings options are available in England, but I will tell you that if you are 19, you have the luxury of a long time horizon - meaning, you will love yourself forever if you invest in FI now. I would work on long-term and short-term (i.e. down payment) savings simultaneously. At least seed your FI fund a little bit and then let time work for you while you focus on your other goals.

Onto budget items:

- In general your budget looks good and it seems like you've chosen the most cost-effective living arrangements and transit.

- What does the phone insurance cover? I'm wary of insuring physical objects in general - you usually end up spending more than you'd spend to replace the item every x months/years.

- Wow, Spotify is the same number of pounds per month as dollars? They should give you a break on the exchange rate! Oh, well... Personally I use Pandora, which, since it's played over the browser, you could pay the American price of $3/mo, which would bring it down quite a bit. However, I admit that spotify is better if you want to listen to specific songs (not just internet radio).

- Between food for work, date nights, DVDs & games, spending money, and misc, I count five categories that I personally lump into "discretionary spending." (I count make up there too, since it's non-essential, although it may be more of a "need" for you if your workplace unofficially requires it.) It may encourage you to spend less on these items if you don't break them out into separate line items. That way, if you buy a few extra lunches during the workweek, you just automatically adjust by waiting until next month to buy the latest game, or whatever. (Insert caveat here about how it certainly may be worth it if these items are highly valuable to you - it's up to you to choose your priorities.)

Also, if you have netflix, what do you need dvds for?</frugal jerk>

StarryC

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #2 on: October 16, 2013, 07:16:11 PM »
I think your budget is OK.  You should really work on increasing your income, either with education or a different job. 

Right now, you don't pay rent or buy most of your own food.  Presumably, someday in the next 10 years, you will.  It looks like that would entirely eliminate your savings.  So, yes, save now.  Cut the phone insurance and try to reduce the non-bus travel.   I'm an American, so I don't really know how much people make in the UK or how much things cost.  But, also, even if it means spending some money now, try to get your income up at least 500 a month to 1600+ after tax.  I assume that rent + utilities would be at least 500 pounds if you currently pay your mum 250, and food would be at least 100 more a month than you spend now. 

grace

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #3 on: October 16, 2013, 07:26:47 PM »
I am American and I don't know what tax-advantaged savings options are available in England, but I will tell you that if you are 19, you have the luxury of a long time horizon - meaning, you will love yourself forever if you invest in FI now. I would work on long-term and short-term (i.e. down payment) savings simultaneously. At least seed your FI fund a little bit and then let time work for you while you focus on your other goals.

Onto budget items:

- In general your budget looks good and it seems like you've chosen the most cost-effective living arrangements and transit.

- What does the phone insurance cover? I'm wary of insuring physical objects in general - you usually end up spending more than you'd spend to replace the item every x months/years.

- Wow, Spotify is the same number of pounds per month as dollars? They should give you a break on the exchange rate! Oh, well... Personally I use Pandora, which, since it's played over the browser, you could pay the American price of $3/mo, which would bring it down quite a bit. However, I admit that spotify is better if you want to listen to specific songs (not just internet radio).

- Between food for work, date nights, DVDs & games, spending money, and misc, I count five categories that I personally lump into "discretionary spending." (I count make up there too, since it's non-essential, although it may be more of a "need" for you if your workplace unofficially requires it.) It may encourage you to spend less on these items if you don't break them out into separate line items. That way, if you buy a few extra lunches during the workweek, you just automatically adjust by waiting until next month to buy the latest game, or whatever. (Insert caveat here about how it certainly may be worth it if these items are highly valuable to you - it's up to you to choose your priorities.)

Also, if you have netflix, what do you need dvds for?</frugal jerk>

I'm in Scotland actually! But, it's practically the same as England in terms of savings. We've got tax-free savings accounts called ISAs (which you can also get stocks & shares versions of) where you can invest up to 5760 per tax year into one as cash, and the rest of the allowance (another 5760) into a Stocks & Shares ISA. Or the whole allowance into Stocks & Shares. I was originally leaning towards shovelling money into my ISA but the rate isn't exactly good (0.5% tax free variable) so I'm holding off until I get my Regular Saver topped up to the 3000 to take advantage of the 3%, then using the rest of my savings to turn it into a Fixed Rate ISA and lock it away for a year or two to grow on it's own. Cash ISAs can then be transferred into Stocks & Shares so the ultimate goal is to get as much money as I can gather into ISAs to be transferred to a Stocks & Shares ISA and invested AFTER I get my house deposit together. Does that sound reasonable? I know that a lot of that will probably seem a bit mad to you being an American but hopefully you get the jist of it!


- Thank you!

- The phone insurance is theft, accidental damage from drops/spills, etc. The contract on the phone is two years and the phone itself would cost about 400 to replace so the 5.99 a month to guarantee myself a replacement in those events is worth it since it works out at just over 140 for the full two years to insure it, and they're difficult phones to buy second hand because it was released recently so most people are still within contracts for it. And people in Glasgow are a little bit sticky fingered, shall we say.

- It's Spotify premium that i have, mainly because I can download everything onto my phone for offline listening. Figured it makes more sense to be able to download and listen to it whenever I want than to spend a similar amount of money on one CD a month.

- My workplace is a little bit iffy on make-up. They don't require it but there is an implicit suggestion that I should cover the fact that my skin hasn't quite aged along with the rest of me, and I still have some acne. But that particular category also covers all other necessary expenses in terms of deodrant, lady products and so on. I quite often don't meet that budgeted amount and just put the rest into a savings account. I've already cut down a lot of the discretionary categories by at least a half when I started tracking my spending and found myself horrified by the result. I keep them separate so I can see exactly how much I'm spending on each and it gives me a clearer picture of where I can cut back. I'm actively monitoring my spending to keep an eye out for other places to cut back on. Date nights are, unfortunately, necessary expenses due to myself and my partner both now living back with our parents so there's very little time we get to spend away from them, hence date nights. But that budget was also cut drastically. That said, however, I think it might be an option to at least try for a few weeks lumping them together and see how that works out for me.

- Because sometimes a film comes along that I just cannot wait for (or it's unlikely to come onto the American Netflix I use) and I have to buy the DVD. But again, giving myself 10 p/m for this is about a 10th of what I used to be able to spend given 15 minutes on Amazon!

For the sake of full disclosure, I did actually just get myself out of 2000 of credit card and overdraft debt caused entirely by my utter lack of self control.

expatartist

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #4 on: October 16, 2013, 07:33:55 PM »
Hey Grace, congratulations on getting started saving, and thinking about the future! We're looking at moving to the UK later next year so your info on accts is particularly useful, thanks.

Just a question or two:
* What's your position at the bank? Do you see promotions on the horizon/can you factor that in to your projected budget?
* Any further education down the line that you'd want to budget for? Anything available that would boost your income and pay for itself in a few years?

grace

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #5 on: October 16, 2013, 07:39:13 PM »
I think your budget is OK.  You should really work on increasing your income, either with education or a different job. 

Right now, you don't pay rent or buy most of your own food.  Presumably, someday in the next 10 years, you will.  It looks like that would entirely eliminate your savings.  So, yes, save now.  Cut the phone insurance and try to reduce the non-bus travel.   I'm an American, so I don't really know how much people make in the UK or how much things cost.  But, also, even if it means spending some money now, try to get your income up at least 500 a month to 1600+ after tax.  I assume that rent + utilities would be at least 500 pounds if you currently pay your mum 250, and food would be at least 100 more a month than you spend now.

Education, not a real option without putting myself in the hole financially at the moment. A new job, well, this is actually a step up from my old job with a TV/broadband/phone company that was 13k before tax, and now I'm 16.4k before tax. I only started in July so I don't have enough experience yet within the sector I want to work in to realistically start trying to move higher. I am only 19 after all, so as I gain experience and banking related qualifications, I intend to move upwards as quickly as I realistically can, or look towards apprenticeships with financial advisory companies. Working on the side is also a no-go for me as, again, I'm 19 and don't yet have experience that anyone is going to deem useful enough for them to pay a reasonable amount of cash for. So as far as I'm concerned, increasing my income is just not possible yet until I can actually say I have experience within banking.

Non-bus travel is mostly a necessity. An average train fare for me is 3 and I work too late in order to get the bus at least one week a month so that's about 15 for that, and whenever I'm out of the house too late to get a bus.

I don't intend to rent ever again as that's a total rip-off in my city so I intend to buy. The mortgage will vary depending on how much the house I get actually costs, but I intend to make sure my mortgage is lower than renting and I won't be getting a house until I have somebody to split the costs with. This would make my bills about 300-400 at an absolute maximum per month. Some of my other expenses would actually also reduce accordingly - my bus ticket would be replaced with walking everywhere, food at work would become amalgamated into my normal food shopping and so on.

lauraredcloud

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #6 on: October 16, 2013, 07:42:35 PM »
Congratulations on getting out of debt! It seems like you are definitely on the right path and none of your category amounts are crazy, it's just that there is always room for mustache-ifying. For example, I save on insurance by not owning anything expensive enough to justify it, and on movie tickets and DVDs by being totally unaware of what films have been made until they come onto netflix. :)

Granted, I'm stubble myself. It's so much easier to find room for tightening in someone else's budget!

Thanks for the explanation of the savings accounts. I'm not sure I totally follow, but generally, if I were in your position, I'd do my best to put in some each year if it's limited per year (even if I couldn't afford to go up to the max). And stocks are your friend when you have a long time horizon. (This said from someone who didn't know a mutual fund from a hole in the ground a year ago... This is the first year I'll be maxing my tax-advantaged accounts, thanks in large part to MMM!)

As far as side income, it may be more possible than you think, depending on your interests. Don't rule yourself out because you're young. There are certainly ways that 19-year-olds can make side hustle. I've done things like host pub quizzes, sell cards on etsy, babysit, write stories, and sell stuff on ebay. I don't get rich from any of those things, but they do make me some pocket change.

grace

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #7 on: October 16, 2013, 07:48:53 PM »
Hey Grace, congratulations on getting started saving, and thinking about the future! We're looking at moving to the UK later next year so your info on accts is particularly useful, thanks.

Just a question or two:
* What's your position at the bank? Do you see promotions on the horizon/can you factor that in to your projected budget?
* Any further education down the line that you'd want to budget for? Anything available that would boost your income and pay for itself in a few years?

oooh excellent! what part of the UK are you moving to? I can help you out with finding information about other accounts if need be as well. They're probably like double dutch to see for the first time as a person from outside of the UK (much the same way American accounts go right over my head).

I'm currently a higher-level sales advisor. There's two other roles within customer services that's below me within personal banking. My job is borderline regulated (lotsss of legal information surrounding my job that means some of my pay is to compensate for tip-toeing around regulatory bodies and so on). From here, I can earn raises according to my performance which is reviewed once a year. I could also look to move into management, but that's not likely to be an option for a while yet. If roles within the mortgages department open up, my employer will quite often fund the necessary qualifications for advisors from my department to move up. If I did this, it would boost my pre-tax income by nearly 9k.

I am considering looking at pre-emptively completing the necessary qualification for that role (known as the CeMAP) which would cost about 550 for all three levels with study materials. There's also a few other similar qualifications of a similar price range that would be of potential benefit to me that I'm considering looking into. I'm still within my probationary period with my current job so I'm not getting too determined to complete these qualifications until I at least know I'm safe in this job.
« Last Edit: October 16, 2013, 07:57:26 PM by grace »

StarryC

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #8 on: October 17, 2013, 11:03:17 AM »
I know some people differ on this, but I think that at age 19, with at least 10 working years, and possible 20-40 ahead of you, some debt financed education is a good idea.  If you wait until you can pay for it, then you lose the earning benefits for the first 5-7 years. 

I don't know how thinks work in Scotland or Banking.  In the US an "associates degree" or "bachelor's degree" opens a lot of doors in any field, even unrelated.  Also, within the US, degrees via "distance learning" and online courses, or one weekend a month type things are around.  Try to find out what the people 2-5 levels above you have for education.

grace

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #9 on: October 17, 2013, 05:05:28 PM »
I know some people differ on this, but I think that at age 19, with at least 10 working years, and possible 20-40 ahead of you, some debt financed education is a good idea.  If you wait until you can pay for it, then you lose the earning benefits for the first 5-7 years. 

I don't know how thinks work in Scotland or Banking.  In the US an "associates degree" or "bachelor's degree" opens a lot of doors in any field, even unrelated.  Also, within the US, degrees via "distance learning" and online courses, or one weekend a month type things are around.  Try to find out what the people 2-5 levels above you have for education.

Our student loans work entirely differently to the way they do in America. You can get the loan once (which I already did to do two years in a course I really did not enjoy), and after that they're not gonna listen to you. I can't get any other form of loan either since the age limit for most is at least 21. Aside from that, in my particular workplace, the necessary qualifications are not provided by universities and experience is valued far more than any sort of degree (the majority of the people I work with are actually graduates from a full range of subjects including finance from different universities). I gain more by sticking in at this job, moving on to the next level, then letting my workplace fund the necessary qualifications to go into mortgage advice, than spending another 4/5 years doing a degree just to end up in precisely the same place, earning the same money, and no further forward. The bank is structured differently in that there is actually only 5 levels of banding in terms of jobs, anything above band 5 is directors. The directors universally started out somewhere near the bottom and worked up. The people higher than them are people who've been working in banking for years across various banks. The highest that there is where I work is a business manager or a regional manager. The nearest BM to me in the chain started in a branch aged 17. The nearest Regional Manager had a degree but started out as customer service in a contact center. Only about half of the managers started on my level and got to become managers based on merit, not degrees.

Literally everyone in Scotland can get a degree because we don't pay tuition fees for our first degree (the one that I dropped out of due to it causing far too many problems and draining the life from me) so a degree doesn't really mean anything unless you're trying to get into an extremely specialised job (which banking is not). Instead it's 600 per certificate for banking related qualifications, most of which you can be sponsored through by the bank if you show potential. If I can't impress them enough with my actual performance for them to put me through those qualifications, then leaving the company for four years and coming back with a degree and still no relevant qualifications wouldn't impress them any more.

lizfish

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Re: Reader Case Study - Barely a bit of fuzz but I'm working on it.
« Reply #10 on: October 30, 2013, 02:53:55 AM »
Grace. You will probably get sick of hearing this, but you are in an excellent position. You are a smart young lady at the beginning of her career. And you are already thinking about how life can be different for you. The road is long, but that time is on your side. If you can add patience and a true passion to follow the different path to that of others  you can be FI ER or whatever you like by the time you're 30/35.

Save hard, make it fun, and build up your resilience against the peer pressure. It will be there, but just remember only you can decide how to live your life. I wish I had know about MMM 10 years ago. and don't worry about a degree. If you enjoy your job and are good at it, then you will work your way up in no time. And if banking don't cut it, consider bookkeping/accounting. On the job training usually available or you can be a self-employed bookkeeper.

Your common-sense shines through your replies. Do how you speak and you will be just fine.