In the fourth instalment of our This is Money Diaries series, we speak to a 30-year-old company boss, from the South East, who may be a high-flier but also wants to learn how to budget his finances properly.
He reveals that, although he obviously doesn’t struggle from paycheck to paycheck, he would like to learn how to make the most of his money and pay off his parents mortgage.
Our ‘Money Diaries’ series looks at the spending habits – along with financial goals and worries – of people aged 18-35.
We look under the financial bonnet and analyse spending habits over the course of a typical month, followed by tips on what they can do to achieve a brighter financial future.
The series is written by Grace Gausden, who offers tips and general guidance to our readers that draw on the rest of the This is Money team’s knowledge and experience. We also speak to financial experts to ask their professional advice when we feel it is needed.
This is Money Diaries: Our series looks at how much those aged 18-35 spend each month, giving tips to help people achieve their goals
Location: South East
Occupation: Company boss
Take home pay: £15,583.33 per month (after tax)
Outstanding debts/loans and what are they:
– American Express credit card: £2,749.89
– Halifax credit card: £367
Bank balance before pay day: He has four bank accounts and altogether it totals £109,044.53
– First Direct: £7,506.25
– Hampden and Co: £57,487
– Monzo: £49.28
– Nationwide: £44,002
Financial goal short-term: I would like to sort my financial mechanisms out so money is not spread among several accounts but is apportioned into sensible places.
It is all a bit of a mess currently, meaning I have no real grasp on how much I have where.
I’ve just become a homeowner so there is about to be a lot more financial complexity in the form of bills, council tax etc.
I want to build realistic budgets and stick to them for peace of mind so I know what is coming in, where it is going and what is left. Primarily for peace of mind.
I also have a goal to save around £60,000 over the next 17 months and to help pay off my parents mortgage.
Things I would like to sort out include sensibly allotting my pay cheque to maximise efficiency, thinking about overpaying my mortgage versus leaving it as it is, life insurance and wills, of which I have neither, savings and investments and general life bills so they’re more efficient and proper budgeting.
Financial goal long-term: Cash buy my house (AKA pay off my mortgage).
Financial concern: Not knowing what money is coming and going and where it is. My accounts and financial relationships are a bit of an organic mess that requires a spring clean. For example, I think I have premium bonds but I’m not entirely sure.
Summary by Grace: Obviously you differ in many ways to our other Money Diaries participants because you are clearly not struggling for money.
You are in a fortunate position that you are the boss of a successful company you have helped build and can now reap the rewards.
From looking through your accounts, it seems a fairly substantial amount of money has been spent on furniture this month, however, this is unsurprising as you recently bought a flat for £2million in the South East and have now taken on a £1million mortgage.
Even though you have plenty of money, it is good to see you are still in good money saving habits. You are using the Monzo’s Savings Pots round up tool to put spare cash aside every time you make a purchase.
I noticed you used your American Express credit card for making purchases abroad but that means you have been hit with a currency exchange fee for each buy. You are likely to be using this to take advantage of the rewards attached such as points towards flights and money off in store.
However, you also have a Halifax credit card which if it is a Clarity one, is much better to use abroad as you will not be hit with a high currency exchange fee and in most cases, there will also be no ATM fee. This, in the long run, could save you quite a lot of money.
Our reader wants to manage his finances better & not have all his money in different accounts
You have mentioned that you would like to make the most of your money and also consolidate your accounts so it is easier to manage.
One of the best ways to do this is to find a savings account with a good rate of interest and move your funds.
James Blower of the Savings Guru said: ‘You should look to keep a savings buffer of three month’s take home pay, which in your case is probably somewhere in the region of £38,000. In your case, you are already there, which is a great starting point. Let’s call your buffer £40,000.
Want to take part?
If you wish to be featured on our new This is Money Diaries series, please get in touch: email@example.com
All our Money Diary stories will keep you anonymous.
‘As you are an additional rate tax payer, you will pay tax on any savings interest as additional rate payers do not have a Personal Savings Allowance. Therefore, I’d suggest you move £20,000 (your Isa allowance for this year) in to an easy access cash Isa account to create this.
‘I’d suggest Coventry’s 1.46 per cent Limited Access Isa or Virgin Money’s Double Take Isa (1.45 per cent).
‘For the remaining £20,000 I’d suggest either Al-Rayan’s new easy access account paying 1.61 per cent expected profit rate or, if you do not want to use a Sharia savings provider, open Marcus by Goldman Sachs’ easy access online account paying 1.45 per cent.
‘Then, in the new tax year next April, open another cash Isa and transfer the £20,000 in to that.
‘As you are already a First Direct customer, you should open one of their regular savings accounts, which pays 2.75 per cent and you can put away up to £300 per month in this.
‘This is a great way to grow your savings and can be done by setting up a monthly direct debit to do so.
‘With your remaining circa £11,000 of savings, I’d suggest opening an 18 month fixed term bond with Al-Rayan Bank, which pays an expected profit rate of 2.22 per cent.
‘This will take you through until the 2021/22 tax year at which time you can then utilise that years Isa allowance and tie up in a fixed rate bond tax efficiently then.’
One thing to remember is money is protected up to £85,000 per account under the Financial Services Compensation Scheme, so be mindful of that.
Our reader this week has just bought a £2million flat in central London with a hefty mortgage
Your biggest outgoing is now your mortgage, which is £1million – a hefty sum. Currently you are paying £5,152 each month towards it.
Ensuring you have the best possible mortgage is incredibly important, even more so considering the large amount you are paying towards your home.
By overpaying on your mortgage each month or even on an ad-hoc basis, you can help cut down the total interest paid and perhaps even see your mortgage is repaid early.
David Hollingworth, of mortgage broker L&C, said: ‘The numbers involved here may be bigger than for an average mortgage borrower but the principles remain the same when evaluating whether it makes sense to overpay.
‘Working out the monthly budget is a good place to start and will help to identify the level of disposable income. It will then be important to weigh up the varying needs of whether to build a cash savings pool, invest in stocks and shares, in a pension fund or a combination of all the above.
‘Some higher net worth borrowers may feel that they can generate a better return on spare cash than they are paying on the mortgage, especially when mortgage rates are so low.
‘That is likely to require a higher risk investment and those that would prefer a safer haven may find cash savings and overpaying a more attractive option.
‘Mortgage rates are very competitive but will still typically be higher than can be achieved on cash savings.
‘By overpaying on the mortgage the effective return on the cash is at the mortgage rate. An additional benefit is that because is no interest income being earned there is no tax to pay.
‘For those that are exceeding the personal savings allowance that gives a much more solid return and they would need to be earning a higher gross savings rate to earn the equivalent return.
‘It’s crucial to check the level of flexibility on your mortgage deal though.
‘Most deals will carry an early repayment charge during any incentive period, often charged as a percentage of the amount repaid.
‘These can vary from deal to deal but can typically be three to five per cent of the amount repaid.
‘However, most lenders will give some flexibility for partial overpayments to be made without penalty, even within an ERC period. That will typically be as much as 10 per cent of the outstanding balance per annum.
‘Before throwing every last penny at overpaying it’s important to have adequate cash to fall back on, as withdrawing any overpayments at a later date may require the property to be remortgaged which would take time.
‘If easy access to the cash is required then an offset mortgage could work well. Cash can be saved in a separate account but reduces the mortgage balance on which interest is charged so the interest bill is cut and maintaining payments at the normal level will reduce the balance more quickly.
‘Offset rates will usually be a little higher than traditional mortgages so it’s important that the functionality will be used.’
To find a cheaper mortgage, take a look at This is Money’s mortgage calculator.
Investing is a great way to help you both manage your money and grow it at the same time. It can help you to save for retirement or perhaps speed up the process of paying off your parents mortgage which you have said is a goal of yours.
Choosing the right place to invest your money is important, especially to make sure you’re getting a high rate of return on your input.
Rebecca O’Keeffe, head of Investment at interactive investor, said: ‘With a salary of £270,000, you have a pensions issue (but there are worse problems to have in life) that affects all higher earners – the dreaded tapered annual allowance.
‘It means that for every £2 a person earns above £150,000, their annual allowance is reduced by £1, effectively reducing the £40,000 annual pension allowance to £10,000. So whilst you need to make sure you are using your annual pension allowance, you also need to explore other tax efficient options, too.
‘You should start by maxing out your Isa allowance each year, which is currently £20,000 per person, and if you have a spouse, maximising their Isa allowance, too – if there is any left over to spare.
‘From an investment perspective, we might be living in uncertain times, but life is never certain and it’s important to take a long term view. Not only does cash earn almost no interest at the moment, but it is costing you money in real terms as inflation is eroding the value of long term cash.
When deciding to invest for the first time, it is important to choose your investment carefully
‘You may want a buffer zone of a few months’ salary, but if you don’t need extra cash then try to find something that will give you a better potential return.
‘A good starting point would be one of the Vanguard LifeStrategy Funds. With five different equity-to-bond weightings, they can suit a variety of risk profiles and with an ongoing charge of just 0.22 per cent, they are a low cost, globally diversified one stop shop.
‘Investors can chose anything from 20 per cent equity allocation, right up to 100 per cent, with higher equity exposure bringing a higher level of risk in the pursuit of greater potential returns.
How much this 30 year-old had in his debit accounts each week of the month:
Week 1: £911.93
Week 2: £239.14
Week 3: £21,584.18
Week 4: £17,027.76
This amount was calculated without the Nationwide account.
‘For someone on your income, who is affected by the tapered annual allowance, and used up your Isa allowance, it also makes sense to think about Venture Capital Trusts and Enterprise Investment Schemes, which are very tax efficient – although investors have to accept a much greater level of risk for the privilege.
‘These types of investment take you into the world of start-ups and venture capital, which can be particularly interesting for people who are entrepreneurs and business people themselves, but for a beginner investor, financial advice would be advisable and it may not be suitable for you at this time.
‘Higher earners who have never invested before need to get their tax treatment right, not to mention anything else – it can save them an awful lot more than clever stock picking. You also need to get your goals and time horizon right. The longer you have the more risk you can take.’
Take a look at This is Money’s guide to choose the best DIY investing Isa.
Life insurance and wills
You have said that you would like to sort out some life insurance, which you do not already have. This would be a very sensible idea as you have many assets to organise.
Sally Jaques, from GoCompare life insurance, said: ‘Life insurance can provide the reassurance you need that your family will be looked after if you’re not around, but before committing to a policy, think about who you’ll leave behind, if they can cope without your income as well as which is the most appropriate cover for you and your family.’
‘As insurers calculate premiums based on risk, prices will really depend on your personal circumstances. For instance, it’s likely to be cheaper for someone in their twenties in good health, than for a smoker in their forties who has suffered previous health problems.
‘Something also worth remembering is the term you choose depends on your reasons for taking out the policy. If you want to make sure your mortgage gets paid, get cover for at least as long as the remaining mortgage term.’
Protection: Having life insurance is important as it provides reassurance for your family
Josh Daniels, Head of Life Insurance at Compare the Market, said: ‘At a young age, it is tempting to ignore life insurance, as it can seem irrelevant to one’s financial circumstances – even for high fliers on six figure salaries.
‘However, there are lifelong savings available to those willing to get ahead of the curve and take out a policy before they reach middle-age. Currently a 30-year-old male can purchase £1million of life insurance, with coverage for 50 years, from £56.04 a month.
‘For someone on a £270,000 annual salary, this is an affordable monthly repayment and a worthwhile investment. However, for just £16.84 per month the same person can purchase £250,000 of life insurance, with coverage for 50 years.
‘Early purchase of life insurance is also advised for home owners living in London and the South East, where high property prices are duly reflected in the cost of policies. For those yet to take out a mortgage, it is worth opting for a small cover amount that can cater to any credit card debt and, in turn, reduce the cost of your policy.’
Another financial concern is the fact you don’t have a will. Again, sorting this out as soon as possible would be a good idea, just in case anything should happen.
James Antoniou, Head of Wills at Co-op, said: ‘Making a will may seem a daunting prospect. Unless you’ve written one before or you’ve taken some professional advice already, you’re unlikely to know where to start.
‘It can be fairly obvious to some people who they want to benefit from their will, this could, for example, be a spouse or children or perhaps a charity. It’s important to also consider who you would like to inherit if your first choice beneficiary has already died before you.
‘Immediately after you’ve died, if you had banks accounts or owned property, these are still in your name. However, someone needs to have the legal authority to deal with things you owned and distribute your estate to the beneficiaries. This person is called your Executor and they are chosen by you when you write your will but they only act in this role after you’ve died.
‘You can try and write your will yourself or you can pay a professional will writer to write it for you. The main benefit of paying for a professional will writing service is getting peace of mind that you understand your options and knowing that your will is going to be written in a way that is recognised by the law.
‘The cost of a will can vary dramatically based on whether you’re writing it yourself or using a professional will writer. At Co-op Legal Services fixed fee wills start from £125+VAT for a standard Single Will. Choosing a will writing service that’s regulated by the Solicitors Regulation Authority will provide extra protection as they are required to act in your best interests.’
From looking at your bank statements, it seems you have many outgoings but this is unsurprising considering you have the means to be able to purchase more freely than perhaps those on lower salaries.
One thing I did notice is that you are spending a fair amount on Uber journeys and on Uber Jump bikes. Whilst cycling around the city as opposed to taking a car is preferable, it is still possible to cut down on your Uber car travels.
Although it may not always be appropriate, getting public transport can be made cheaper if you purchase a 26-30 railcard. This takes a third off rail tickets and off peak tube fares meaning you can particularly save a decent amount when travelling in the evenings.
Another way to cut down on any bill expenses is to use price comparison websites to see how much you could be saving on your energy, phone, broadband and TV bills.
To see if you could save on your energy bills, check out This is Money’s price comparison tool.
The above is not financial advice, but some tips for what our diary writer could do to achieve the goals mentioned.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.