A money journalist’s personal finance revolution: Part 3
Children have their upsides: they look quite sweet, they can be useful for fetching things and one day they might support you in your old age. In the meantime, they are extremely expensive. There was a timely reminder of this from MoneySuperMarket this week, which has done a survey into the cheapest (or rather, least expensive) universities.
Durham, Exeter and St Andrews comes out top, but perhaps what was more notable was the expense of the whole thing. MoneySuperMarket looked at the cost of accommodation (£102 per week for Durham, up to £185 for University College London), plus car insurance, home insurance and, of course, beer. This is on top of university tuition fees. Roughly speaking, parents are looking at £9000 (fees), plus £4000 (term time accommodation), plus £4000 (spending money). Those not keen to leave their children in debt are looking at around £100,000 to put two children through further education. Even more should they choose to study in London. Ouch.
Starting early makes it less painful. £100 a month starting at birth would give a pot of around £31,600 (at a growth rate of 4%) at age 18. Start 10 years later and you’ve only got £11,300, which is barely going to keep them in crackers, cream cheese and extremely strong cider.
I wish I could claim that I’ve been this organised. As it is, the amount I’ve saved probably would barely buy a day’s worth of lectures. However, I’ve still got 13-14 years to play with. I picked up a couple of recommendations on children’s savings from a friendly financial adviser: One, don’t put it in cash – if you’ve got a decade or more to invest, you can ride out the volatility associated with the stock market and you’ll probably get a better return in the long run. Two, don’t use junior Isas. The trouble with Junior Isas is that once they reach 18, the child can spend it as they like, and that might not include their education. They’re a great way to save, but not for this particular purpose.
This column may be about saving, but I’d like to rail a little against the tendency of the financial services industry to suggest that people should always be saving more. Feeling a little proud of myself that I was finally doing something to build a savings pot, I decided to check with an online retirement calculator as to whether I was on track. This particular calculator said I would need to save £3.5m to retire at 60 and, needless to say, I was some way short.
Another example is the widespread recommendation that people hold around six months salary in cash. This covers redundancy, the roof falling in, a sick cat and that sort of thing. Given that I am a freelancer and therefore, technically, all my income could evaporate at a moment’s notice, I should probably have a little more. But I have found this completely impossible to achieve. Having six months of my salary in cash means that I would need to save my entire salary for six months. That sounds self-evident, but could take years after paying tax, mortgages, childcare and the like.
To most people, these sort of sums sound ludicrous and are, I think, part of the reason people are deterred from saving: I’ve looked at these calculators, or the six-months-salary-in-cash rule and thought ‘why bother’ – I seemed so far from achieving it. So I am going to ignore all the nonsense and comfortably plant myself in the Tesco school of saving ‘Every little helps’. Of course, it would be great to save more, just as it would probably be good to go to the gym every day. But with money as with exercise doing a bit is lot better than doing nothing.
Click here for Part 2 of this series.