Help me advise 22yr old daughter about savings & investing
Discussion
My daughter has recently graduated and has moved back home. She has just got a great job that will net her 1.5k per month and as she plans to live with us for the time being will thus have relatively low outgoings.
I have given her a car that I maintain and insure for her but soon she will be getting her first paycheck and I want to help her set herself up going forward.
At her age we were part of the easy credit boom and have gone through life without saving a penny. We were lucky though when a property we bought for peanuts went up in value 10 fold and will probably be worth over a million when the mortgage is paid off in 10 years plus it currently yields 2 k a month ( it was an old hotel that we converted into our home plus 3 one bed flats). We don't though have a savings plan, in our mid fifties and I really do not want my kids to be in this position when they get to our age.
So setting up a pension fund, a emergency fund, a fund for her first flat and holidays etc, bearing in mind that for now she does not have any house outgoings, how should she do it, what percentages and where? We are not in the UK so will need to look at online services as our local banks are not great to say the least.
I don't know if her employer has offered a pension scheme yet but let's assume for now that there isn't one.
I have given her a car that I maintain and insure for her but soon she will be getting her first paycheck and I want to help her set herself up going forward.
At her age we were part of the easy credit boom and have gone through life without saving a penny. We were lucky though when a property we bought for peanuts went up in value 10 fold and will probably be worth over a million when the mortgage is paid off in 10 years plus it currently yields 2 k a month ( it was an old hotel that we converted into our home plus 3 one bed flats). We don't though have a savings plan, in our mid fifties and I really do not want my kids to be in this position when they get to our age.
So setting up a pension fund, a emergency fund, a fund for her first flat and holidays etc, bearing in mind that for now she does not have any house outgoings, how should she do it, what percentages and where? We are not in the UK so will need to look at online services as our local banks are not great to say the least.
I don't know if her employer has offered a pension scheme yet but let's assume for now that there isn't one.
First, I'd try to wean her off Bank of Dad and get her used to financial responsibility by getting her to run her car, with her own money.
Second, pension. See if there's a work one. If there isn't work with her to get a pension started. The sooner she starts the more she'll get. I believe - but stand to be corrected - that you can only do this with an IFA. If so, ask someone you know, whose judgement you trust personally, for a genuine recommendation based on their own experience. This is the time of life when a bit of thinking ahead (and not squandering everything) can make a massive difference in the future. We don't know what the future will bring but few would deny that the bigger the pile, the more choices you have.
Second, pension. See if there's a work one. If there isn't work with her to get a pension started. The sooner she starts the more she'll get. I believe - but stand to be corrected - that you can only do this with an IFA. If so, ask someone you know, whose judgement you trust personally, for a genuine recommendation based on their own experience. This is the time of life when a bit of thinking ahead (and not squandering everything) can make a massive difference in the future. We don't know what the future will bring but few would deny that the bigger the pile, the more choices you have.
I completely agree but don't know how to go about setting it up.
I came across a plan that split income into 50/30/20, which made sense with the 20% being savings but of that, do you split that into further portions or do you put everything in one pot and draw out afterwards?
Of the pension part, how safe is drip feeding into a global vanguard fund if you are not in the UK or US?
I came across a plan that split income into 50/30/20, which made sense with the 20% being savings but of that, do you split that into further portions or do you put everything in one pot and draw out afterwards?
Of the pension part, how safe is drip feeding into a global vanguard fund if you are not in the UK or US?
Her employer has to offer a pension so get her contributing the maximum. Charge her a nominal amount of rent and make her pay for her own transport. She’s an adult with a job and the easiest way to learn fiscal responsibility is act like one and pay your own way. It’s nice that you want to help but it doesn’t help anyone if you allow all of her income to become disposable. My parents did that with my sister and she’s still living at home at 27 not paying any rent, god only knows why they’ve let her get away with.
jazzdude said:
I completely agree but don't know how to go about setting it up.
I came across a plan that split income into 50/30/20, which made sense with the 20% being savings but of that, do you split that into further portions or do you put everything in one pot and draw out afterwards?
Of the pension part, how safe is drip feeding into a global vanguard fund if you are not in the UK or US?
Well, you need to start at the beginning - her income, less her essential outgoings (eg food, housing, car), leaves 'disposable income'. Some of that can go towards social things, some can be saved. So first you/she needs to do the maths and decide 'How much each month can reasonably be saved?' It might be £50, it might be £300.I came across a plan that split income into 50/30/20, which made sense with the 20% being savings but of that, do you split that into further portions or do you put everything in one pot and draw out afterwards?
Of the pension part, how safe is drip feeding into a global vanguard fund if you are not in the UK or US?
Not sure what 'plan' you're referring to, but it's up to her how much she saves and then how she invests it. She could of course keep it all in a bank or b/soc - no growth but no risk, easy to do and it's not been spent on nights out.
As for 'investments' (ie something that will hopefully increase in value with time), that gets more complex. A pension is only one kind of vehicle for for saving/investing. Right up there with 'Pension' is 'ISA'. I think of ISAs (stocks and shares ISAs) as pensions without the strings though this isn't entirely true. Both can be invested in pretty much anything, typically a mix to spread risk. Vanguard is a popular company but I'm not qualified to tell you what to invest in. Hope that gets you started
I'd suggest the 2 main priorities are:
1. Get her to start saving into a pension as soon as she starts earning. Starting early makes a huge difference so even if this doesn't feel like a priority to her now, she'll thank herself for it later in life.
2. Saving towards a property. A Lifetime ISA is a bit of a no brainer for that, given the 25% government bonus. If she's not likely to buy a property in the next 5 years or so, a stocks and shares LISA may be a good choice (there are a few providers to choose from). If she's likely to buy sooner than that, a cash LISA may be better (Skipton are the only cash provider currently).
1. Get her to start saving into a pension as soon as she starts earning. Starting early makes a huge difference so even if this doesn't feel like a priority to her now, she'll thank herself for it later in life.
2. Saving towards a property. A Lifetime ISA is a bit of a no brainer for that, given the 25% government bonus. If she's not likely to buy a property in the next 5 years or so, a stocks and shares LISA may be a good choice (there are a few providers to choose from). If she's likely to buy sooner than that, a cash LISA may be better (Skipton are the only cash provider currently).
What I thought of doing was this:
1.charge her a nominal rent which we will take from her and put in a savings account.
2. She is already paying for petrol, I will work out a budget for her for servicing and insurance.
3. Work out what 6 months of her expenses and work towards saving for an emergency fund.
4. If there is no pension fund at her place of work, then she will put 10% of her salary into a vanguard global tracker on a monthly basis. I'm not sure at this stage whether a tax free wrapper is needed due to the fact that she is currently under the tax threshold and not paying any. Perhaps the 'rent' she pays either also goes into this fund or a separate deposit fund for here first flat.
The 50/30/20 plan basically is a budget where you split your income into 50% necessities, 30% indulgences and 20% savings so in the above scenario with 10% into the pension fund, it leaves another 10% for the emergency fund or deposit fund.
How does that sound?
1.charge her a nominal rent which we will take from her and put in a savings account.
2. She is already paying for petrol, I will work out a budget for her for servicing and insurance.
3. Work out what 6 months of her expenses and work towards saving for an emergency fund.
4. If there is no pension fund at her place of work, then she will put 10% of her salary into a vanguard global tracker on a monthly basis. I'm not sure at this stage whether a tax free wrapper is needed due to the fact that she is currently under the tax threshold and not paying any. Perhaps the 'rent' she pays either also goes into this fund or a separate deposit fund for here first flat.
The 50/30/20 plan basically is a budget where you split your income into 50% necessities, 30% indulgences and 20% savings so in the above scenario with 10% into the pension fund, it leaves another 10% for the emergency fund or deposit fund.
How does that sound?
jazzdude said:
1.charge her a nominal rent which we will take from her and put in a savings account.
On a previous thread on a similar topic someone had charged their son rent, and then when he moved out gave it back to him to help with getting a new place, which I thought was a nice idea.There's a happy medium to helping out though, my parents paid for my car insurance/tax/servicing while I was at uni and it meant I was able to have a car, which in turn meant I got to do a lot of stuff I couldn't have done if I'd been relying on public transport and a bike.
wormus said:
Agreed. It’s normal to want to help your daughter but it’s not helping her to take responsibility for her own life.
Ditto, my parents charged me for lodging. However my mother had put this into a separate savings account which effectively topped up my deposit when buying my first home. It sound like you are comfortable financially could be a stealthy way of forcing your daughter to save.If I could rewind to that age, I’d forget about property (too restrictive at that age and a PITA, she may want to work abroad etc) and stick everything I could every month across a few decent funds (e.g. Fundsmith, Lindsell Train Global Equity, Rathbone Global Opportunities etc) via an ISA / SIPP and leave it alone. I am certainly no financial advisor, this is just my opinion.
The car was a mini trip bought when both kids were at home before uni and they used it to learn how to drive. I kept it after they went to uni, because as a r53 it was fun to drive for me too.
She has come back home so the car is there and she uses it but as I said she pays for fuel but suppose she could service it too.
But my question is, is it possible to save for a pension, a deposit and an emergency fund at the same time? All have equal priority so how does that work?
She has come back home so the car is there and she uses it but as I said she pays for fuel but suppose she could service it too.
But my question is, is it possible to save for a pension, a deposit and an emergency fund at the same time? All have equal priority so how does that work?
jazzdude said:
The car was a mini trip bought when both kids were at home before uni and they used it to learn how to drive. I kept it after they went to uni, because as a r53 it was fun to drive for me too.
She has come back home so the car is there and she uses it but as I said she pays for fuel but suppose she could service it too.
But my question is, is it possible to save for a pension, a deposit and an emergency fund at the same time? All have equal priority so how does that work?
I’m not sure I’d bother with an emergency fund at 21 and in low paid work. It’s very easy for someone that age to find other work paying the same or more very quickly. Worst case she could just go and work a bar job. Priority will surely be saving up to put a deposit down on her own place and getting a small pension pot on the go?She has come back home so the car is there and she uses it but as I said she pays for fuel but suppose she could service it too.
But my question is, is it possible to save for a pension, a deposit and an emergency fund at the same time? All have equal priority so how does that work?
If you’re prepared to help her to extent you are I’d suggest that the bank of Mum and dad might suffice as an emergency backstop for now.
jazzdude said:
But my question is, is it possible to save for a pension, a deposit and an emergency fund at the same time? All have equal priority so how does that work?
I don't see why not if she's has a free, insured & maintained car, nominal rent and (presumably) no household bills?jazzdude said:
4. If there is no pension fund at her place of work, then she will put 10% of her salary into a vanguard global tracker on a monthly basis. I'm not sure at this stage whether a tax free wrapper is needed due to the fact that she is currently under the tax threshold and not paying any.
The 50/30/20 plan basically is a budget where you split your income into 50% necessities, 30% indulgences and 20% savings so in the above scenario with 10% into the pension fund, it leaves another 10% for the emergency fund or deposit fund.
A few thoughts:The 50/30/20 plan basically is a budget where you split your income into 50% necessities, 30% indulgences and 20% savings so in the above scenario with 10% into the pension fund, it leaves another 10% for the emergency fund or deposit fund.
If her net pay is £1500pcm (£18Kpa net) how is she under the (income) tax threshold of £11,850pa?
I wouldn't put all my eggs into a global tracker. If the world goes down, so do you. On the plus side, she is young and can replace losses.
The 'plan' makes no sense to me. What if the necessities, when you've added them up, come to 23%, or 71%? Necessities are what they are. So we're really talking about 'What to do with the *disposable* income?'
I also don't like the idea of a budget for 'indulgencies'. This could lead to the mentality of 'I've only spent half my indulgency budget this month, I must go and spend it on more indulgencies'.
The ISA allowance is £20Kpa. So whatever you/she choose to invest in, make it in an ISA because it can only be beneficial.
Emergency money is a good idea - as long as it stays for real emergencies and not 'Ohh I like that red car'. I'd build up a fighting fund of £5K to start with, then go for 50% pension, 50% ISA. The funds can be the same in each if you want.
Caveat: My only qualifications for the above are from the school of life, 25 yrs self-employment, decades of saving/investing, and now cashing in.
djc206 said:
I’m not sure I’d bother with an emergency fund at 21 and in low paid work. It’s very easy for someone that age to find other work paying the same or more very quickly. Worst case she could just go and work a bar job. Priority will surely be saving up to put a deposit down on her own place and getting a small pension pot on the go?
If you’re prepared to help her to extent you are I’d suggest that the bank of Mum and dad might suffice as an emergency backstop for now.
I agree with that. If you’re prepared to help her to extent you are I’d suggest that the bank of Mum and dad might suffice as an emergency backstop for now.
The financial "risks" in early twenties are all about buying stuff you don't need, borrowing money for stuff you don't really want, and generally living beyond your means.
The main advice I can give is to encourage your daughter to choose some financial goals which motivate her. This is working on the principle that people with goals and targets tend to get more satisfaction from life. If she has been in full time education so far, the goals have been relatively easy and set out for her. In the real world, as we all know, there are a lot more distractions.
Personally, at that age I found saving for a house deposit very motivational, and gave a very good reason to save diligently, and to start to adopt some reasonable financial disciplines like monthly budgeting.
jazzdude said:
My daughter has recently graduated and has moved back home. She has just got a great job that will net her 1.5k per month and as she plans to live with us for the time being will thus have relatively low outgoings.
I have given her a car that I maintain and insure for her but soon she will be getting her first paycheck and I want to help her set herself up going forward.
At her age we were part of the easy credit boom and have gone through life without saving a penny. We were lucky though when a property we bought for peanuts went up in value 10 fold and will probably be worth over a million when the mortgage is paid off in 10 years plus it currently yields 2 k a month ( it was an old hotel that we converted into our home plus 3 one bed flats). We don't though have a savings plan, in our mid fifties and I really do not want my kids to be in this position when they get to our age.
So setting up a pension fund, a emergency fund, a fund for her first flat and holidays etc, bearing in mind that for now she does not have any house outgoings, how should she do it, what percentages and where? We are not in the UK so will need to look at online services as our local banks are not great to say the least.
I don't know if her employer has offered a pension scheme yet but let's assume for now that there isn't one.
Impossible to say without knowing whether or not she’s crippled by debt/expensive debt and whether or not she would be better served paying that off. If she’s just started working, I’d suggest she looks at preserving that income stream in the event she can’t work. I have given her a car that I maintain and insure for her but soon she will be getting her first paycheck and I want to help her set herself up going forward.
At her age we were part of the easy credit boom and have gone through life without saving a penny. We were lucky though when a property we bought for peanuts went up in value 10 fold and will probably be worth over a million when the mortgage is paid off in 10 years plus it currently yields 2 k a month ( it was an old hotel that we converted into our home plus 3 one bed flats). We don't though have a savings plan, in our mid fifties and I really do not want my kids to be in this position when they get to our age.
So setting up a pension fund, a emergency fund, a fund for her first flat and holidays etc, bearing in mind that for now she does not have any house outgoings, how should she do it, what percentages and where? We are not in the UK so will need to look at online services as our local banks are not great to say the least.
I don't know if her employer has offered a pension scheme yet but let's assume for now that there isn't one.
Whatever she makes by putting into a pension now, will be rendered pointless unless you have squared off your own IHT situation first. You refers to kids, plural. I don’t know your estate planning situation, and I know this isn’t a literal suggestion, but if she paid £50 a month into life cover, not in her name not yours, and written in trust, that would possibly be a good use of her funds.
Don’t obsess about funds and that sort of micro detail stuff right now - take time to look at the big picture properly first. Measure twice, cut once etc.
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