For most of us, five areas of spending will consume over 50% of the money we earn during our lifetime”
The five areas are: Houses, motor cars, children, education and retirement. Here’s what you need to know about each:
Do not over commit financially. One's home is an investment and an expense. The questions to ask when purchasing a house is 'how much can one manageably commit to spend on accommodation?’ It is also important to remember that home ownership involves more than mortgage repayments, there are property taxes, insurance, maintenance together with other ongoing costs. On average these costs are 2% to 3% of value of property.
2# Motor cars
Cars are a major expense and, as with accommodation, ask yourself how much expense you can tolerate. Financially, it makes more sense to buy a 2 or 3 year old car than a new car. The running costs of a car must also be considered - insurance, motor tax, fuel, maintenance, depreciation, and parking.
The cost of raising children differs greatly but it is estimated that a child born in 2008 to the age of 18 is £200 000. Deciding to become a parent is a gift and for many no financial sacrifice can measure up to the joys of having children.
A tertiary education is the best investment in one's (potential) future, expensive though it may be and many raise student loans to secure this investment. One should aim to be confident to be able to repay the loan within 10 years of graduating. Should for example one's estimated net remuneration be an average of say £20 000 in the first decade of one's career, and assuming that one repays 10% of one's loan (in this time) then one's loan should not exceed £20 000.
Tips for improving on this scenario
• Paying off debt takes time - Realise that it is far easier to borrow money than it is to repay it. A loan that is raised in a week may take years to repay.
• Reduce your spending - be frugal in the use of your student loan money. It should never be used for anything that is not absolutely essential and unavoidable.
• Work part time? Think about working part-time to help lower the amount you need to borrow to finance one's education.
Aim for the minimum possible student loan at graduation to enjoy the benefit of hard work rather than paying interest.
The number of retirees compared to those working is rising due to increasing life expectancy.
Start paying into a private pension fund as soon as you are fully employed to alleviate the burden of catching up later and continue your contributions until retirement. Spread over your work life , including the generous tax incentives, one can minimise monthly contributions to save enough money to retire on. Calculate how much you need to live on and plan accordingly.