Understand the options and help you have available.
Manage your money to make the most of it
For most of us, a mortgage is probably the largest and longest debt we’ll ever carry. One of the biggest hurdles when you’re buying a place of your own is getting a deposit together. It’s one of the first obstacles you’ll run up against, too. Here are some tips on getting over it.
It’s definitely worth setting goals for yourself whenever you have to make a major money decision. You can’t start by picking the type of property you want and then working out how you can afford it. Instead, start by looking at what kind of mortgage you can get, then use that figure to see what you can buy with it. Remember – goals are important, but they need to be realistic from the outset.
Once you know how much you’ll need as a deposit, it’s time to start saving toward it. Again, setting a specific goal will help you to focus on saving. If you’ve never needed to save serious cash before, it’s a good idea not to get too ambitious too fast. That doesn’t necessarily mean dropping your target, though. Just be realistic about how far away it is and how long it’ll take you to get there.
Setting up a simple standing order into a savings account is a great way to get started. If you set it so the money goes out on your monthly payday, you’ll probably hardly notice it.
This is a fantastic tip for getting your money under control. The 50/30/20 system is designed to give you the clearest possible picture of your money situation, and it’s surprisingly simple.
Here's how it works:
The first thing to do is add up all the money you’ve got coming in each month, wherever it comes from. From there you can start dividing it up according to where it’s going.
The first 50% of your income is set aside for the real essentials like food, utilities, debt repayments and rent. These are the expenses you really can’t avoid.
The next 30% is your “fun fund”. This is where your non-essential spending happens. You’ll be saving effectively with this system, so there’s no reason to deprive yourself here. Just keep it to a maximum of 30% of what you’ve got coming in.
The last 20% is for your savings and investments. In some ways, particularly when you’re saving toward a specific goal, this category’s actually more important than your fun fund. That’s why it’s often actually better to deal with it first.
This last 20% of your income should also include an emergency fund. Ideally, you’re going to want to end up with somewhere between 6 and 9 months’ worth of essential costs in here. So, if your unavoidable expenses come to £1,000 a month, you’re going to want to sock away £6,000-£9,000 in your emergency fund savings account. In fact, the anti-debt charity Step Change says that even having £1,000 saved could stop half a million of us from landing over our heads in debt.
Once you’ve got your emergency fund sorted, you can start looking into other saving goals.
Making money decisions in a hurry is often a bad move, but we’re getting pressure piled on us all the time to do just that. “Unmissable” deals with limited-time offers and “FOMO” sales techniques are designed to short-circuit your brain into emptying your pockets. Before you know it, there’s a courier at your door and you’ve already forgotten what you ordered.
Here’s an easy trick that’ll cost you nothing and could save you plenty: just give it a day and decide tomorrow.
The 24-hour rule is one of Lloyd’s Bank’s top savings tips for the same reason it’s one of ours: it works. Set yourself a 24 hour no-spend rule on non-essential purchases – particularly online ones. Instead of hitting the “add to cart” button, just bookmark the page and click yourself away somewhere else. The next day, come back to your bookmark and ask yourself if it still looks like it’s worth the money. If it does, at least you put some thought into it. If it doesn’t, you’ve saved some cash.
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If you’re in the right age group for it, the Lifetime ISA scheme could be a very smart option when you’re looking to scramble together a house deposit.
Top things to know:
Lifetime ISAs are for people between the ages of 18 and 40 and either buying a home or setting up savings for later in life.
You can pay up to £4,000 a year into your Lifetime ISA until you hit 50 years old. Your first pay-in needs to be by the time you’re 40, though.
Whatever you pay in, the government tops it up by another 25%, up to £1,000 in top-ups per year.
When you turn 50, you can’t pay anything more into a Lifetime ISA.
Keep in mind that the £4,000 yearly limit is part of your normal ISA limit. No matter how many ISAs you have, you can’t pay in more than £20,000 (as of the 2021/22 tax year) across all of them.
As for how you can use the money in your Lifetime ISA, the rules are:
You can take the cash out to buy your first home, as long as it’s worth £450,000 or less. You can’t do this until at least 12 months after you first paid into the ISA. You also need to be using a conveyancer or solicitor for the purchase, and to be getting a mortgage.
You can also take money out if you’re over 60 years old or have less than 12 months to live. If you take cash out for any other reason (known as “unauthorised withdrawals”), you’ll lose 25% of it.
If you’ve got one of the old-style Help to Buy ISA, you can’t use cash from both that and a Lifetime ISA to buy your home. You can still transfer cash between them, though. Just make sure you don’t go over the £4,000 yearly limit when you do it.
Another tip is to look again at the numbers you crunched when you set up your 50/30/20 budget earlier. While your rent definitely went on your “essentials” list, if you can move to a place that costs you less while you save for your deposit, you could hit your goal much faster. Shaving £100 of your monthly rent, for instance, would see you saving an extra £1,200 a year.
It actually goes a little further than that. If you move to a smaller place while you save, it’ll probably cost a little less to run. Your energy bills will be lower, for one thing, along with your Council Tax.
Another option is to look into a “property guardian” arrangement. Some property owners will put a roof over your head in exchange for you looking after the place for them and keeping squatters out. Failing that, even just renting a room from a homeowner can mean a significant boost to your saving potential. Some people - particularly older homeowners - will charge you very reasonable rents in exchange for helping out around the house or running a few errands once in a while.
It can be tough to stick to a savings goal, especially when the finish line seems so far away. That 30% “fun fund” you set for yourself can burn out fast when you’re bombarded with exciting ways to splash your cash on a daily basis, putting your 20% savings target at risk. Taking challenges can actually help focus your saving habits to keep you on track. Remember, little and often will get you there quicker than the occasional random cash-dump. Here are some example challenges to try:
The Zero-Spend Challenge
This one’s simple, but surprisingly effective. Just pick a day of the week to keep your cash in your pocket. If you want to get the most out of this, choose the day you’d normally expect to spend the most (on non-essentials, of course. Don’t starve yourself).
If you’re finding it tricky not to open your wallet, try cutting down on your mobile screen-time so you’re not peppered with adverts all day. Other easy tricks include swapping out your usual weekend nonsense for free local activities in walking or cycling distance. Don’t cheat yourself out of too much fun, obviously. Getting the balance right is the key to staying on track.
The 1P Money Saving Challenge
We talk about this in more detail in our article, “The 1p Money Saving Challenge”. Basically, though, just set aside 1p on a given day, then each day save a penny more than you did the day before (add 2p to your pot on day 2, 3p on day 3 and so on). At the end of a year, you’ll have saved a surprising £667.95!
RIFT Round-upWhat's it all mean?
The 50/30/32 rule: A simple way to divide up your money so you don’t lose control of it. 50% of your income goes toward essentials, 30% toward “fun stuff” and the other 20% is saved or invested.
Emergency fund: An important savings safety tip. Aim to have 6-9 months of your essential living expenses stashed away.
The 24-hour rule: An easy way to trim back your impulse purchases. Simply give yourself a day to think it over before dipping into your pocket.
Lifetime ISA: A savings account for people aged 18-40 to help them put away cash for a house deposit or later life. Savings get topped up by 25%, to a limit of £1,000 in top-ups per year.