Home Buying Tips for Millennials
Money for Millennials: A Beginners Guide to Managing Your Money
An update from BB Mortgages
By James Carpenter
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Money for Millennials: A Beginners Guide to Managing Your Money
Millennials seem to have picked up a bad reputation when it comes to money, with people often joking that they can’t afford to buy a house because they’ve frittered their money away on avocado toast and expensive coffee… In truth, millennials have it much harder than previous generations when it comes to money.
The FCA recently calculated that for the average millennial to achieve similar levels of wealth accumulation as those reaching retirement today, they would need to have “wealth growth” of about 48% year on year between age 20 and 36, then around 7% year on year between 37 and 51, and then around 6% year on year between 52 and 64.
Those might seem like pretty daunting figures, but on the flipside, millennials are much more likely than previous generations to inherit wealth.
If you’re a millennial and you want to start taking control of your finances and savings then this guide will give you a great starting point.
No matter what your money goals, whether it’s saving for a home, planning your pension or just paying off student debt, it all starts with budgeting. If you’re looking for financial security (and who isn’t?) then it’s vital that you put these budgeting basics in place.
1) Track all your income
Do you know exactly how much money you have going into your account each month? If not, it’s time to get really clear. What is your monthly take home pay (after tax) and do you have any other regular income such as benefits or regular over-time?
When you have a clear idea of the money coming in, it’s much easier to control the money going out.
Which brings us to…
2) Track all your expenses
This bit can be tough at first – especially if you’re fairly sure that you’re spending more than you should. But that’s exactly why it’s a really important habit to get into!
When you don’t track your expenses, it’s very easy to spend more than you realise which can lead to fewer savings and in many cases, unmanageable debt.
3) Regularly review
Get into good habits when it comes to reviewing your finances and in particular, your spending habits. You may be able to identify patterns which are having an impact on your ability to save or to live within your income.
A recent report from the Bank of America suggests that millennials are actually pretty good at saving, with most millennials starting to save for their retirement at 24, while GenX started at 30 and baby boomers at 33.
However, due to crippling student debts and increased living costs, most millennials still find themselves with less wealth than earlier generations. If that sounds like you, then here are some tips to help you to boost your savings.
1) Set a goal
Having a specific goal when It comes to your savings is really helpful because it will give you something to focus on – and motivation to keep going!
2) Start easy
One of the quickest ways to give up on your savings goals is to set yourself a goal that feels too hard. Start small and don’t feel like you have to give up all the things that you enjoy at once. This will only leave you feeling demotivated and more likely to have an un-budgeted splurge.
3) Use apps to help you
If you find saving difficult, then make it easier by automating the process! There are lots of apps out there these days which offer various types of support to help you increase your savings. A few examples are:
Allows you to automatically round-up transactions and save the change
Notifies you when you’re getting close to your overdraft
Set specific ‘pots’ for your savings
4) Check interest rates
With savings interest rates so low, it can feel like it’s hardly worth paying attention to them. However, even the tiniest increase in interest can gradually become more meaningful as your savings build.
Buying a home is a lot more expensive than it used to be. Back in 1980, the average house price was around £18,000 and the average annual wage was around £5000. So, your mortgage would have been under 4 times your wage.
Now? The average house will set you back a whopping £229,000 – while the average annual income is £27,000. To buy a home, you’ll need to pay over 8 times your wage.
So, as a millennial, what can you do to make buying your first home a little bit easier?
1) Start saving for a deposit as soon as you can
Your deposit will be one of the biggest obstacles in getting a home. Most mortgage lenders will require you to pay at least 10% of the value of the property you’re buying – and with average house prices like the one above, that’s no mean feat.
The sooner you start saving – even if it’s just a small amount each month, the sooner you’ll be picking up the keys and moving into your first home.
2) Consider using a guarantor
You might have a friend or family member who would be willing to act as guarantor for your mortgage. This means that they will cover the mortgage if you’re not able to. It also means that there’s less risk to a mortgage lender and so you’re more likely to be accepted – and to get more favourable rates.
3) Get expert advice
Your mortgage will probably be your biggest financial commitment and as such, you want to make the best choice possible. When you speak to an expert mortgage adviser, they can assess your circumstances and suggest mortgages that are going to be best for you.
They’ll be able to chat to you about options such as longer mortgage terms or shared ownership and they’ll be able to tell you about any funding that might be available to help you.
They’ll also be able to highlight any important information such as early re-payment charges or other fees which you’ll need to consider.
Most mortgage advisers will help you with the administration side of your mortgage and give you added peace of mind through what can be quite a stressful process.
Lastly, your mortgage adviser will have access to products which aren’t available on the high street, so it really is worth getting support in making the right choice.
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One of the first choices you’ll make when It comes to managing your money is which bank account to use. There are literally hundreds of choices out there so how do you know which is the right one for you?
Types of bank account
It’s worth knowing that there are a number of different types of account to choose from and it’s worth doing some research to find out which type is going to suit your needs best.
This is the most commonly used bank account and is designed to help you manage your day to day finances. Your current account will usually allow you to pay your bills by setting up direct debits or standing orders. You’ll also be able to receive automated payments such as your salary or benefits. Current accounts also tend to come with a debit card which allows you to pay for goods and withdraw your money from cash machines.
Most current accounts also come with an overdraft facility, although this will generally need to be authorised.
Some accounts come as a bundle with other deals or services. These types of account will normally have a monthly fee (typically £10-15 per month). Examples of the additional services might be preferential interest rates, breakdown cover or other insurance cover such as mobile phone insurance.
Basic bank account
This could be a good choice for you if you’re struggling to open a current account due to having a poor credit score or no existing credit history. This type of account won’t come with an overdraft but will allow you to set up standing orders and direct debits as well as receive payments like your salary.
Jam jar account
This type of account is also known as a budgeting account or rent account. It allows you to split your money into different ‘jars’ so that you can budget and save more easily. As with the others, these accounts allow you to pay bills by standing order and direct debit, as well as receive payments such as your salary or benefits.
The downside is that this type of account tends to have a monthly fee.
Most people will have one account for the day to day management of their money and another account for savings. This type of account will usually have a slightly higher interest rate for your money and fewer options when it comes to paying bills and withdrawing cash.
Before you choose
As well as the different types of account, there are a few other things to consider before you make your choice:
Online banking makes managing your finances much more convenient. Most banks offer this feature, but it’s worth double checking before your make your choice.
Fees and charges
Many accounts now come with monthly fees as well as charges for things like exceeding your overdraft limit. Make sure you’re fully aware of any fees or administration charges that might be included.
Don’t forget to check that your account has all the features you need such as a debit card and overdraft facility.
There’s nothing worse than dealing with a company who has terrible customer service, so it’s worth saving yourself some hassle and making sure that the bank you choose offers good support.
Interest rates and incentives
If you’re planning to use the account to save money then make sure you check what interest you’ll be earning, as well as any other features which might be offered such as partner discounts or cash incentives
What you’ll need to open an account
These days most banks make It as easy as possible for you to open an account, but you’ll still need to provide some personal details and documentation in order to get your account set up. You can expect to be asked for some form of identification such as your passport or driving licence. You’ll probably also be asked for proof of your address, like a recent bill.
It’s likely that the company you apply to will do a credit search on you too so it’s worth checking your own credit report before you apply to make sure everything is in order.
Other key financial services
Of course, your mortgage and bank account won’t be the only financial decisions you’ll need to make. A key part of managing your finances is also protecting them along with your other biggest assets such as your home and car.
Below are some of the main types of insurance you should consider:
If you’re a homeowner then you’ll need to invest in home insurance. This protects you should anything happen to your home, so that you’ll still be able to cover your mortgage repayments.
These days, many of us own very expensive mobile phones which are both easily lost or broken, not to mention a target for thieves. Investing in phone insurance can save a lot of cost and hassle in the long run.
If you drive a car, then car insurance is a legal requirement. It covers you should you be involved in an accident.
If you have a partner or other dependents, then life insurance will give you peace of mind that they’ll be financially taken care of in the event of your death.
Choosing the right products
With so many different financial products to choose – and so many options for each, it can be tricky to know where to start! Here at BB Mortgages we always recommend chatting to an expert who can look at your personal circumstances and advise you on the best course of action.
We offer free consultations so if you’re looking to get on the property market, or just to get your finances sorted then we’d love to help!