2 days ago
‘I only earn £300 a month. How will I ever save?'
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For the past seven years, Jess Muxlowe has been learning to live with a brain tumour.
Now, at 25, she's found a lifestyle that suits her, allowing her to quit her job and spend more time with her two-year-old daughter Freya.
After studying theology and philosophy at Birmingham Newman University, Muxlowe worked as an administrator for her local council for a year before realising that a nine-to-five schedule did not suit her medical needs.
A self-confessed bookworm, Muxlowe has instead managed to incorporate her love of reading into earning money. She sells books online, at events, through her local community, and in schools for Usborne Community Partnership, earning £300 a month.
Usborne Community Partnerships is part of the publishing company of the same name, and allows people to work for themselves selling books. Muxlowe has sold 23,000 in just five months, and is aiming for 50,000 by the end of the year.
Becoming self-employed and reducing her hours means she can attend medical appointments, even if they come through at short notice after being stuck on a waiting list for months.
Her partner, Lee Bond, is the breadwinner. He works as a forklift truck driver and earns around £1,400 a month. Bond's wages cover household bills and Muxlowe's the food shop.
She considers herself thrifty and is careful with day-to-day spending. She bulk buys food and freezes future meals, as well as using Facebook marketplace and Vinted to buy furniture and clothing.
But when it comes to financial planning, Muxlowe isn't sure where to start. She doesn't know if she saved into a pension when employed by the council. Meanwhile, taking a significant pay cut, having earned £1,200 a month at the council, and the expenses of raising a child mean any savings have been depleted.
Fortunately, the family of three lives in Muxlowe's mother-in-law's home, in Walsall, rent-free.
Bond's mother works two jobs and moved out of the property so that the young family could live there. She rents a property with her partner instead.
Long-term, Muxlowe hopes they will be able to get a mortgage and buy the property they're living in. But with such a reduced income stream, she wants to know how to prioritise her finances, and whether they should start contributing to a rainy day fund, saving for a mortgage, or building a retirement pot first.
Will Stevens, head of wealth planning at Killik & Co
Saving in your 20s can be a daunting task, including knowing whether to prioritise planning for retirement or focus on more immediate needs, such as saving for a home.
This can be even more difficult when earnings are commission linked or you're working part-time. One thing that can help is having a budget that allows you to plan and understand where your savings should be prioritised.
First and foremost, Muxlowe should prioritise a rainy day fund, making sure she has three to six months of expenditure set aside in cash, saved in the bank or in an instant access savings account for emergencies.
While more immediate costs might need to come first, it's also important to strike a balance with saving for retirement, where early contributions can benefit from long-term compounding. By breaking down the timeline between her immediate, near future and long-term needs, she can begin to understand how much is needed towards each objective.
Fortunately, there is also an option that can help with both: the lifetime Isa. The lifetime Isa has an allowance of £4,000 per year, which is part of your whole year Isa allowance of £20,000, and the Government then contributes 25pc on top.
The Lifetime Isa must be used for your first home purchase – and there are restrictions, including a value limit of £450,000 – or it can be used to fund your retirement. If you make withdrawals for any other reason, you could lose the government contribution.
Equally, a conventional Isa and pension combination will also work effectively to save towards both, but getting the balance right between the two can be difficult.
It's important to note that she should take less risk with her money where it's needed for near-future costs, and she can take more risk and focus on equities for longer-term objectives like retirement planning to deliver real returns over the years.
Nicola Crosbie, director at Moran Wealth Management, a St. James's Place partner practice
Muxlowe's initial focus should be concentrated around building up her cash reserves to cover any emergencies or short-term needs, and savings for a house deposit. I would start by looking at the income the household generates and their fixed and discretionary outgoings. This can help determine a budget for savings each month.
Muxlowe should view this as a household task and look at the bigger picture – living rent-free awards an opportunity to monopolise and rebuild your reserves. I would recommend that some of their income be earmarked for an emergency fund.
Assuming they are both first-time buyers, she should consider lifetime Isas to build up a deposit. You can save £4,000 each year up to the age of 50, and the Government will add a 25pc bonus to your savings up to £1,000 every year.
At this stage, I would prioritise savings over retirement goals – I would not forget that being self-employed means she needs to take control over her own provisions.
Muxlowe should contact her old employer to understand if she was enrolled in any pension schemes to ensure she knows what her starting point is. If she's struggling to find any details, she can use the pension tracing service for lost schemes. Muxlowe should also ensure her National Insurance payments are up to date and being paid towards building her state pension provisions.
If she feels she can pay into a pension, and still realise her savings goals for a property, Muxlowe should consider a personal pension plan. Being self-employed, she needs to arrange this herself. Your pension provider claims tax relief from the Government at the basic 20pc rate and adds it to your pension pot – this is limited to 100pc of what you earn.
I would advise that the main priority is to build the routine of regular savings and develop more awareness of what is possible with monies in/monies out to save. Understanding her goals for a house purchase is essential – what she needs and the timescales.
