Over a third of renters couldn’t last a month on their savings
More than a third (35 per cent) of private renters could last less than a month on their savings, according to Hargreaves Lansdown.
The wealth management service said this compares to one in six (17 per cent) of those with a mortgage, and one in 20 (6 per cent) of those who own outright.
It suggests that Generation Rent is already ‘wrung dry’ with only one in five (19 per cent) private renters saying their finances are in good shape. This is compared to half (50 per cent) of those who own their own home outright, and a third (35 per cent) of those with a mortgage.
Just over a quarter (26 per cent) of property owners save less than £50 a month, compared to just under half (48 per cent) of renters.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Generation rent is being wrung dry, and the spending squeeze is making it worse. Only one in five say their finances are in good shape and more than one in three couldn’t last a month on their savings.
“Their finances are on a knife edge, so even the smallest surprise runs the risk of causing financial chaos. Fortunately, there are ways to build your resilience, even when you’re renting.
“Renters have to work much harder to build their resilience, because they’re hamstrung by the fact they spend far more of their income on rent than owners spend on the mortgage. On average, almost 30 per cent of their income goes on rent, compared to less than 20 per cent for those with a mortgage. It means there’s far less in the budget to save for emergencies.”
Hargreaves Lansdown suggests that working people should have three to six months’ worth of essential expenses in an easy access account just in case of nasty surprises, and retirees should have one to three years’ worth.
Coles continued: “The spending squeeze has made everything harder, with the cost of everything from petrol to energy bills and food going through the roof. However, there are still some techniques we can use to free up enough cash to put a little aside every month to build our resilience.”
Hargreaves Lansdown has published its top tips to help renters to build resilience into their finances.
Five steps to resilience for generation rent
Draw up a budget. It’s the easiest way to keep on top of your finances, but so many of us don’t get round to it. Make a list of everything coming in and everything going out, and then you can tinker with the figures to find a way to have a little left over each month.
Give up things you don’t get a lot of value for, by shopping around and trading down. For other people there will be some bigger lifestyle changes on the cards. Try not to rule anything out at this stage.
Once you’ve freed up a sum, start with debt. The more you’re spending on debt repayments and interest, the harder it will be to make ends meet. See if you can switch your debts to pay less interest. Once you’ve switched, keep up minimum payments on everything, but focus your efforts on paying off the debt with the highest interest rate first.
Give yourself strict rules on debt in future – otherwise you’ll be stuck in the emergency debt repayment step for life. You should never borrow for things you want – only for the things you need – and you should never borrow without a fool-proof and affordable plan for paying it back.
Build an emergency safety net. Once your debt is repaid, you can use the cash you have freed up to work towards building 3-6 months’ worth of essential spending in an easy access account, just in case of emergencies. It feels like an enormous target, but when you’re hit by the unexpected, you’ll be grateful for whatever you’ve managed to put away.