The summer months can be a strange time of year for uni-leavers. Some students are itching to get into the working world, a good portion are putting the finishing touches to a million online applications and the rest are taking time out to have a think about the whole thing. However, there’s something about the pageantry of gowns and caps that brings into sharp focus the stark reality of life after study.
It didn’t really click for me until that day at Bath Abbey but when it did what concerned me most wasn’t the job search or the flat-finding, it was that there were so many unknown unknowns out there. Forget the answers, I didn’t even know the right questions, particularly around money.
Personal finance is among the top concerns for graduates and with financial education only seeping into the National Curriculum as late as 2014, it’s not a big surprise.
So, if you’re in the same boat that I was, or know someone who is, here are two things to help on the savings side.
Step one: which account?
An easy way to decide on the right place for your savings is to sort your short-term goals from your longer-term ones. In even simpler terms, think pre and post-retirement.
If you’re aiming for a house deposit or the like and have at least five years to get it together, a Stocks & Shares ISA could suit. You can put in up to £20,000 this tax year and you get to keep any growth you achieve on your investments, making it a tax-efficient way to save.
For those post-retirement savings, if you qualify you’re likely to be automatically enrolled in your company’s pension scheme - check to see if they’ll match your contributions if you put in a little extra every month. Everyone loves free money and that small addition from each payslip can really make a big difference.
At Fidelity, we calculated that a 25 year-old, with a starting salary of £25,000 and contributing 8% of their qualifying salary into their pension, would build a pot worth over £440,000 by the time they reach 68, the State Pension Age.1 Please remember past performance is not a reliable indicator of future returns.
If they topped that contribution up by 1% of their total salary they would end up with a pension worth over £505,000 - a huge difference of around £65,000.
Have a look here for more information on which accounts could work for you.
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Remember though, these are just the accounts, so you’ll need to see which investments you want to put in them. I know, easier said than done - but not really actually. Our tools like this one can help guide you if you’re just starting out so go explore.
How early, not how much
Regardless of where you put your money, the logic is the same. It needs time to build up a snowball effect that makes all the difference later on. This compounding is the reason young people have a tremendous advantage if they start saving now, because time is the one thing you can’t make up for.
If you are worrying about money, just make sure you arm yourself with the basics and work from there. Getting into the habit of contributing regularly to an ISA or pension is the first step and there’s always more information on investing at fidelity.co.uk.
1 Fidelity International, June 2019. Based on the assumption auto-enrolment is at 8% of your total salary and that the qualifying band for auto-enrolment begins at the currently level of between £6,136 and £50,000 and rises by the rate of inflation, assumed to be 2% a year. Earnings are assumed to rise by 3.75% a year and the assumed investment return is 5% after all costs.
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.