Author Topic: Help me like I am 5 years old......UK investor help!  (Read 2551 times)

Jeepo

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Help me like I am 5 years old......UK investor help!
« on: September 16, 2014, 02:30:37 AM »
Hi Guys,

Fairly long time lurker on the website and forums. I have spent a lot of time on here and on Monevator trying to figure out my investment/saving strategy. So far, you can safely say this is WAY over my head, though using the website has helped me lower costs a lot. In all honesty I think I am simply looking for someone to say "Do this" and I can do it, and watch the money grow. It is embarrassing how crap I am at trying to learn this.....I have looked at Vanguards and ISA's and iWeb and savings and not much of it means much to me.

I have a chequered financial history - a history of bad decisions from the age of 18 until about 26. I am now 28, and below is my current situation:

Income

Job Income - 25,000 PA - Software sales job, not the dream....
Bonus - Fairly reliable 250 a month
Commission - Fairly unreliable so far

After Tax and NI, my take home is roughly 1,650 a month

Debt

I used to have about 12k credit card debt spread over 3 cards, hurray for bad decisions with an ex girlfriend! I got this job about 16 months ago however and have been chipping away at it since. I consolidated the debt as much onto one card where I got 2 years to pay it off. So far, it is now down to one Credit Card left, and a student loan (History and Politics graduate, stellar choice!!):

Credit Card Debt 5,700
Student Loan 8,000 - Currently they take about 80 a month in Student loan repayments
Computer bought on Credit that needs paid off in November if I want it to be interest free - 850

Other debts:

I have 1 bank account with an over draft of 600, currently I dip in and out. In the process of closing as they are going to be charging me interest soon. This one is mainly just convenience and laziness on my part, I need to move direct debits...

Outgoings:

Rent - 425 a month in a shared flat
Credit Card - 150 a month
Bills (Phone Internet) - 35 PM - No land line phone and no Sky/cable TV.
Utilities - (Gas/Electric) works out roughly 30 a month - Will definitely go up over winter here in Northern Ireland....
Food - Roughly 240 a month
Gym - Free
Car - Free
Bicycle - Bought it on the cycle to work scheme last year, last payment next month of 40
Social - 50 a month - I rarely drink, less than once a month, and I rarely do much of anything these days. I am happily entertained at home watching DVD's of dubious legality from the internet.
Saving - Currently putting 150 into an account mentioned below, and squirrelling away what remains in the account in another saver. I would likely be better suited to moving more at the moment I get paid and forcing me to live better.....
Pension: I currently put in the minimum to my work pension: 40 pre tax.

Debt strategy:

I started the "handling my debt" crisis by throwing all my spare money at the cards to get rid of all the interest paying two. Once done, I set up a DD to the last remaining card. It currently pays in:

150 a month to the balance, counted above.

Bank Accounts:

Bank of Scotland - 0 interest, receive 5 a month if it receives 750 a month and I use 2 Direct Debits.
Saving account 1 (0.75% Gross) - 1000 (I accrue what I don't spend from salary here)
Saving Account 2 (2.00% Gross fixed for 12 months) - 600 - (Currently I deposit 150 a month here now)
Fixed Cash ISA (2 Years, currently 12 months since opened, 1.8%) - 500
Access Cash ISA - 25
Current Account Balance - 440
Pay Day is 25th of month, I reckon I will need max 100 to get me there, so I can move the rest of the current account balance somewhere else.

All in all this leaves me with roughly 2,500 I have on my hands right now. Take off the 850 for the computer is 1715. Very small beans here.

Above mentioned Danske Bank Account with minus 50 - Will close this one.

Open to changing/moving money to get some returns, as per something like this I saw on Reddit:

Quote
Indeed, I've got 300 a month bashed into the FD regular saver as well, but my main account was with them anyway, so I don't need to worry about the 1000. I think it's definitely worth pointing out that you can add it to the chain though:
Standing Order 1: 1,000 current account to Nationwide on the 20th
Standing Order 2: 1,000 Nationwide to Halifax on the 20th
Standing Order 3: 1,000 Halifax to First direct on the 23rd
Standing Order 4: 300 First Direct to First Direct Regular Saver on the 26th
Standing Order 5: 700 First Direct to current account on the 26th

Not sure if it is worth the effort, little worried I would get it wrong.

Full explanation here, apparently he gets 7.29% interest on 2,500: http://www.reddit.com/r/UKPersonalFinance/comments/1cv1qs/how_to_get_729_on_2500_by_using_two_different/

Other Money

Strange grouping maybe, but I have the following:

Work Pension - I contributed the minimum in a bid to tackle the credit card debt. 40 PM
Work Share Scheme - 3 year scheme, I am under just under half way there. Contributing 50 a month, accrued about 700 but I can not touch it.
Currently tracking an old pension from a previous employer, might exist, might not.

So I think that is all the detail. As you can see, it seems a bit of a mess. I have the old bank accounts as I have always had them, and feel they could be more efficient. I am unsure why I am even "saving" when I have debt, but I figure I would be able to pay off the Computer and use whatever is left. Not much I grant, but I want to get the most bang for my buck.

I used to be totally "unsure" what I spent my money on. These last 3 months I have become more aware and thrown off things I don't need. I live a fairly frugal life, particularly in comparison to my peers and Girlfriend(who I live with but we are financially independent.) I walk to work, I bring my own food, I gym for free now, I have no transport costs. I don't buy clothes or expensive things (praying my mobile holds up).

Now I am ready to take this seriously to get out of debt and start for the first time in my life, making some money.

Where the hell do I start with:

A) The remaining Debt.
B) Saving/Investing so I can get bang for buck.
C) Bank account situation

I will happily move a lump every month from one account to some sort of investment as soon as the pay comes in to force the frugality even more, I like the challenge of this! Judging by these numbers I should be saving 720 a month, this is not the case, so on my behalf further work is required. I have very little to invest, but want to start ramping it up I guess.

I figured as the debt is interest free repayments I could continue to chip at it and move it when the time frame is up, and instead do something better with this tiny bit of money I have. For reference, this is the most I have ever had, how crazy! I appreciate all help, and sorry for the wall of text, I had no clue it would spiral so big, or that it was even this messy until I started. Ultimate layman's terms required here folks!

Thanks!

PS Does something like mint.com exist for the UK? Might be of use to me....:D
« Last Edit: September 16, 2014, 07:10:43 AM by Jeepo »

Aurelius

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Re: Help me like I am 5 years old......UK investor help!
« Reply #1 on: September 16, 2014, 12:52:40 PM »
Hmm, I'm 26 and do understand your position; it's hard to get the ball rolling, but luckily you earn a lot more than me!

Okay, first things first, you need to triage yourself. Looks like your outgoings comes to 1080, and even with wiggle room that's far less than the 1650 you've got coming in. You may want to keep track of exactly what you're spending each and every day for a month. Your food bill seems a little high, too. Remember: Every pound is a prisoner.

Your second task is to get that debt destroyed. Pay off as much as physically possible, as quickly as possible. It's not that high but you still want your money to be flowing in the opposite direction. Find out the debt with the highest interest amount (most likely the credit card debt) and target that first.

It should only take a few months to totally destroy it- so use that time to learn all about savings and investments! It's pretty complex so well worth investing a lot of time reading up on it. I would also suggest that after you destroy your debts you create a small emergency fund in an easy access ISA. That way, if you need the money you can get to it, if not you get a little bit of interest.

A lot of this is going to be psychological. So, your phone breaks. BAH! Get a cheap one and carry on! If you can break the wimpy consumer conditioning that the world has inflicted on you permanently, you'll go far! :D

Jeepo

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Re: Help me like I am 5 years old......UK investor help!
« Reply #2 on: September 16, 2014, 02:06:50 PM »
Hey, thanks for reading and replying!

Yeah for sure I need to track my spending much better as it has. Never worked out what I wanted it to. Any ideas of good software to help this?

I am lucky in that i have my credit card debt interest free now, so I have a little bit of time to nail that. That time is what sort of splits my goals - I feel I could use the small amount I have saved to start growing into something more.

What are the best resources to learn this stuff? Obviously the website, but i really need a for dummies guide! Honestly, it may sound dumb, but I really do struggle with this stuff, mostly it makes very little sense for me!

Food, yes that is high. I started a life plan when I got this job, and my priority at the time was health. I made an effort to start working out and eating healthier. I lost nearly 4 stone of fat, and while that food bill is relatively high, it is repetitive and allows me to cook in bulk. I can however look into being more frugal there. Now I have got myself to a better state physically, finally is financially.

I am considering opening that First Direct account and getting the 6% interest on savings and then move the rest to the nationwide account and get a nice high % on that too, it gets me started with interest and buys me time to learn, and then I can drop a sum on the credit card before it runs out of interest free period.

I need to firuge out this index fund stuff, which is I think what I need to look at. HL I believe is how you do it. 

Such a noob! :)

daverobev

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Re: Help me like I am 5 years old......UK investor help!
« Reply #3 on: September 16, 2014, 02:27:21 PM »
The 'do as I say' thing is something like:

Cut your food bill in half

Pay off any credit card debts ASAP. No point having savings at 1%. Just kill the cc.

Open a stocks and shares isa. I use iWeb Share Dealing. Pay in 750 ON PAYDAY every month.

Buy one etf a month. Perhaps VUKE, HMCX, IWRD, IGLT - or find some no load no fee mutual funds. Not sure, I've only done ETFs.

You are then getting FTSE 100, FTSE 250, the rest of the world, and bonds/gilts. THIS ALLOCATION IS NOT PERFECT! But it's a good start. It's called 'couch potato' and you 'rebalance' once or twice a year.

Do this for 15 years then retire!

Of course you may be shoving money into your ISA to buy a house? Over anything other than a short timespan the money will likely do better invested, but no guarantees.

Aurelius

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Re: Help me like I am 5 years old......UK investor help!
« Reply #4 on: September 16, 2014, 03:43:50 PM »
I track my spending in Numbers, but only because it was free in the App Store. Any spreadsheet should do really, at this point you're just monitoring so you can honestly see what needs doing.

Just online really, like most people here I'm self educated in personal finance stuff. Really, there's two areas you need to learn about - Frugality and Banking. MMM should cover you but you may want to read more on UK-specific sites for banking. Moneysavingexpert.com is a nice way to ease in. MMM is good for all the other stuff. It's more psychological- you'll learn to curb inefficiencies, laugh at spendthrifts and learn about the proper application of money. 

Food wise- Aldi and Lidl, mysupermarket.com (for comparisons), and local markets should bring your food bill down significantly. 'Healthy' food is really just.. food. Doesn't matter where you buy an apple from, tis still an apple. I eat exceedingly healthy and well for a little under half of what you spend.

The specifics of your bank account don't matter a huge amount at this point in the road. Like Daverobev said, your debt is a much more urgent situation than your savings.

Don't put too much on yourself at once, either. Remember every journey is taken step by step. This is a huge undertaking and will last the rest of your life (you won't want to go back)

SteveR

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Re: Help me like I am 5 years old......UK investor help!
« Reply #5 on: September 16, 2014, 05:46:41 PM »
A few random thoughts, and apologies if this is at all patronising:

  • If all your debts are interest-free at the moment, it makes sense to put your savings in a suitably-accessible bank account and get all the interest you can on them. You need to be careful not to lock the money away for longer than the debts you could pay with it will be interest free - so don't tie the money up for a year if your credit card will start charging interest in six months.
  • Since I doubt your debts will be interest free for as long as five years, you don't want to be investing in any kind of stocks and shares until you've paid the debts. Stick to bank accounts and the like during the interest-free period; maybe Zopa or something like that at the outside. I can imagine your impatience to get on with the business of investment but just concentrate on reading up for now. The reason for this is that if you invest (say) 500 in the stock market now but you need that 500 in six months time to repay your debts when the interest-free period expires, you'll be in a mess if the market has dropped and your investment is now only worth 400. If you were in it for the long run it wouldn't matter, but you'd effectively be forced to sell and that's never a good thing. Obviously you might get lucky and your investment could be worth 600 at the time, but on this kind of time frame you'd really just be gambling, not investing.
  • The one stocks and shares investment that just might make sense in your current position is via your pension/work share scheme. If, for example, your employer will match your contributions, it's possible the free money and any tax breaks on the money contributed will outweigh the extra interest you'd incur on the debt by paying it off more slowly. I am not sure if this is likely; I haven't even tried to calculate it. If in any doubt at all, don't do this - as Aurelius says, you will have killed the debt in no time, so no point being too clever about this.
  • You could try getting a cashback credit card; I have the Aqua card, which is aimed at people with a poor credit record (which you may not have, but worth knowing if you do) which pays 0.5% cashback. It's not much, but as long as you don't spend gratuitously it's completely free money. (I think there are some Amex cards which give you 3% back, but I preferred the simplicity of the Aqua card. You also apparently get free access to your credit record as part of the package, although I haven't investigated that myself.)
  • Don't beat yourself up! Sounds like you've made huge progress over the last couple of years and really turned things around a lot already. (Hope that's not too patronising, but I did want to say it.)
« Last Edit: September 16, 2014, 06:03:22 PM by SteveR »

Jeepo

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Re: Help me like I am 5 years old......UK investor help!
« Reply #6 on: September 17, 2014, 03:04:18 AM »
Lots of fantastic advice, thanks to you all for reading and replying so far! And not at all patronising! I did say explain to me like I am 5! :D

I do feel my own eagerness to proceed, but you are right it is not a rush. I will get there eventually, if I can become as obsessed with this as I did with my body fat goal I will be fine! My mid to short term plan for the next year is to kill the debt. I will put all the money I am saving into a high interest account that is easily accessed.

I am thinking I will put all my savings into the Nationwide Flex account that gives me 4.89% interest up to 2,500. It is easily accessible if I need it, it is just a current account. Then once that is full at 2,500 I will move the rest of what I save into the First Direct account at 6% interest. This account will also give me a 100 bonus for joining! That locks it away for a year, but I have 16 months left interest free on the credit card anyway, I just double checked the dates to confirm. I drew a diagram and it makes sense on paper here, it just might not make much sense if I explain it! :D

This way I gain interest and save a bundle, and I can lump sum off the credit card next year. After that it should all be plain sailing with looking to invest somewhere.

I will definitely look into food bills as I think those give me most wiggle room. I would hope to cut 1/3 out of that at least. My issue is I eat a LOT of meat these days.....will start looking into frozen stuff if needs be!

I had a few quid credit left on my android account (gift vouchers for the win!) so I got a budget tracking app that should help me visualise what I am doing. Will certainly help. I have the Mrs on board, sort of. She will continue to do her own thing, but knows I will be frugal as hell for the foreseeable, and that is fine as it should not effect her day to day.

I have not really looked into cash back cards, but if it gives me a few quid return I don't see why not. I opened 2 new current accounts last night to do the above, and closed one old one. Both new ones were of course offering cards which I declined, so I don't see it being an issue applying if I needed to. Will do some research though....

Finally, good news yesterday, commission is banging this month, so I get an extra 700. That is most of the PC paid off in one nice hit, without having to look at using the savings. Good start!

Bad news, our company is being acquired, so that does lead to fears! Another day in the life I guess!
« Last Edit: September 17, 2014, 03:06:09 AM by Jeepo »