There’s no easy way of telling Millennials that they should be saving in their twenties. It is a necessity for anyone that wants security in their thirties and forties; yet it seems to kill all conversation when brought up with those asking for advice. It even instills fear into some of my friends who refuse to discuss finances. It’s ingrained in us Brits to avoid financial conversations, so maybe it’s no wonder that government figures suggest that UK consumers spend £90bn a month without a second thought.
To us twenty-somethings, the idea of saving seems to signal a move from a care-free city life towards one of the joy-killing hermit. Social media is littered with quotes telling us to sieze life by the scruff of the neck, with helpful comments such as “you only have one life, this is not a rehearsal!” and other seemingly wise clichés to inspire us on a miserable Monday morning. It particularly hits home when, on close inspection of the wallet, we are greeted on Sunday morning with the reality that the weekly food budget went on one drunken Saturday night, and as a result, we convince ourselves it was worth it for a weekend we’ll never be able to experience again. Work hard, play hard, let the good times roll.
But what most of us don’t realise is that saving doesn’t mean disappearing off the face of the earth. It is not a life sentence, and can actually be enjoyable. Is life really about Black Friday deals? After all, 50% off tat is still tat. Saving in your twenties is about prioritising; it’s about choosing which parts of your life are most important to you, and which ones you can easily live without. Some you won’t even notice are gone. Saving shouldn’t be a stagnant decision that limits you, but rather it should be a positive change that gives you freedom. Everyone will have different priorities so there is no set rule of what to change, but the key is that change shouldn’t be negative. If someone told you that changing your daily lunch habits could make you a homeowner by 30, you’d probably laugh. But it’s not as far from the truth as you’d think.
So why bother making the adjustments? Firstly, it’s the easiest time to save. Post-university you can still claim all the perks of being a student but with the added benefit of a salary. Interest-free overdrafts, interest-free credits, and discount cards galore for shops, restaurants and holiday companies like STA Travel. All those savings could either go into a hotel upgrade, or they could go into a pot which might be the first step towards the holy grail of all investments, a deposit for your own home.
Secondly, responsibility is at an all-time low in your twenties. Most British women are now not having their first child until they reach 30, and men even later, so your salary is, most likely, entirely for you. The biggest expense will be getting an invite to a wedding and splashing out on accommodation, a present, a new outfit and train fare (or plane fare) to the far flung destination.
Finally, and most importantly, your savings will grow exponentially; with property growth in London now out-weighing wage growth, you can’t afford not to save. Getting on the property ladder is crucial if you want control of your life, and it will make a difference to your future if you start saving now. And it’s not just in London where house prices are growing. According to research firm Hometrack, property in Cambridge has surged by 44.7% since 2007, with Oxford following closely behind with a 37.4% rise in prices. All it takes is some careful thought and shrewd research into the market.
So how to start saving? It’s all about prioritising, and regardless of how much you earn, it can be whittled down to three main expenditures: food and drink, travel, and accommodation. As they say, it’s not your earnings that make you wealthy; it’s your spending habits.
Food and drink
Living on a budget doesn’t mean never enjoying yourself. But there are certain times to splurge, and certain times to save. M&S food should be limited to when you fancy a treat or a night in at the weekend, not for everyday at your desk when you’re mindlessly slurping and not noticing what you’re eating. When you consider that a regular coffee from a chain now averages £3, if you either cut out your daily fix, move to office coffee, or bring in your own flask, you’ve saved yourself an astronomical £720 a year. Add that up over the decade and you’re half way to a deposit for a flat.
Equally, evenings and weekends don’t need to be spent at home alone eating soggy pesto pasta, feeling like a finance martyr. With the UK restaurant scene now competing for patrons, there are deals in abundance. Bring Your Own Bottle is becoming increasingly popular in the major cities for independent restaurants who can’t compete with the chains for low food prices. Restaurants offering this option range from local African cuisine in Brixton such as Negril (£2.50 per person for bring your own per day) to Hawksmoor in Knightsbridge, an upmarket steak and seafood restaurant which charges £5 corkage per bottle every Monday. With their own Prosecco starting at £40, they recommend maximising BYOB Mondays with a Nebuchadnezzar of champagne and a jolly good knees up!
The belief that travelling is the only thing you can buy that will make you richer may be clichéd, but it is fundamentally true. Virtually my entire spending budget goes on seeing the world, discovering new cultures, and expanding my mind. And just because it’s enjoyable, travelling doesn’t have to be a one-way drain on your bank account. These days there are a number of organisations which can earn you good money from leaving your home empty. The more well known companies like Airbnb and Home Exchange are easy to use, flexible, trustworthy, and will provide you with a steady income. In Manchester, a private room on Airbnb typically goes from £32-50 per night or in Liverpool you could charge £30-70 depending on location and the quality of room. Airbnb claim the average UK host earns £2822 per year by letting their property for 33 days. Suddenly a weekend away from your flat is an opportunity. If you are savvy, it is possible to earn every penny of your trip back, if you are just prepared to open your house to other likeminded people and explore short-term rental options. If you happen to have a slightly more up-market home and don’t fancy the hassle of cleaning it between stays, companies such as OneFineStay offer up to £250 per night for your one bedroom apartment in Central London.
By far the biggest monthly outgoing comes from rent, so stopping it as soon as possible is all the more important. Too often we Millennials get over-excited by our first proper-paying job and decide to rent a lovely two bed in the centre of a city to start enjoying life. Out comes the flat screen, surround sound, and all the kitchen mod-cons. You’ve officially arrived in the working world. But when you consider how little time you spend enjoying your apartment every week, the hours barely hit double figures. Between sleeping, working, gymming and going out, how luxurious do you really need your apartment to be? The average one bed flat in London is now over £400 per week. It comes as no surprise that the West London weekly average is £623, but even Peckham is now £298. That’s £15,496 down the drain every year, just to rent a Peckham one-bed. Getting on the property ladder in your twenties is the best start you can give yourself to ensure that by the time your forties arrive, you’re not house hunting whilst also balancing school fees, bills, and trying to justify a family holiday.
So maybe living in shared accommodation is not as enjoyable as the freedom of your own flat, especially if you’re living with a partner and want to enjoy being a couple. You want to make your flat homely, cosy and yours to share – except it’s not yours, so making it homely for your landlord isn’t useful for your future finances.
Your money works hardest for you in property, so the quicker you can invest in it, the better – if that means living in a shared flat for five years in a grimy part of town, it’ll be worth it. That annual £720 we saved earlier on coffee seems nothing compared to £15,000 on rent. But is a house really worth it?
One of the biggest misconceptions is that borrowing from the bank loses you money. Yes, you pay interest, but as you borrow, you can also earn. Interest rates are so low at the moment that if you were to get a 90% LTV mortgage on the average one bed in Peckham, you would only pay £576 interest a month. Compared to the £1,291 monthly average rent, that’s a pretty good saving. And as a mortgage is the cheapest way to borrow; envisage the interest as an offset against capital growth. A few years ago I bought a two bed in Brixton for £295,000 to save me from having to rent. Yes, it’s not the most glamorous of areas, especially a few years ago, and my neighbours were either on drugs or drunk pretty almost 24 hours a day; but I’d researched that the area was going up, so aged 23 I took my first punt in the real world. With monthly interest of £700 going straight to the bank, it initially seemed like I was losing a lot, so I took in a housemate. That way, although I wasn’t making money, I also wasn’t losing any. That was, until it went on the market earlier this year, and sold for £530,000.
If someone had told me I could earn £235,000 through simply being frugal and putting in a few hours scouring property trends, I perhaps wouldn’t have believed them. But much of the necessary savings really did come down to a combination of making lunch at home, living in shared accommodation or back at home for periods, and restricting restaurants to BYOB evenings (and this was a rarity – in the first three years of setting up my business I restricted dining out to as little as possible, preferring dinner parties where spending can’t get out of control). Yes, it’s not as fun as getting trollied in swanky cocktail bars four nights a week, but it means that within a few years, the luxuries attributed to wealthy forty-somethings are now within my reach. People say “live your life the way you want to, not the way you have to” as if happiness equates to spending money on booze and clothes that you don’t need. But maybe it refers to being in control of your life, being debt free, owning a house, and feeling secure. Saving in your twenties might just be a lot more than it’s cracked up to be once you’re in the driving seat; you can’t really afford not to.