rental Rule of thumb

Eh? "Should be"? Rent is dead money, it's not like it's a savings plan or a mortgage. Pay whatever you want to or can afford to pay.

David

For the OP;

Its depends on the rental market where you are... but personally I'd aim to split income after tax as follows;

- 1/3 rent

- 1/3 living (including bills)

- 1/3 saving

Depending on your live style you may want to adjust this.. but everyone should be aiming at saving 1/3 of income.. whether it be a deposit for a house, to redo the kitchen or want kids.

I agree.. and hence my sugestion above.

What about the interest paid on a mortgage? Surely thats "dead money" too?

Given the doubling of house prices over the past few years, to me it currently makes more sense to rent.

For example, is it better to pay rent to cover a £100k landlords interest only mortgage when they bought 5 years ago, or buy and pay interest to the bank for £200k?

The first thing is look for somewhere you could stay and rent for awhile.. ask about the landlord (how mant properties, when did they buy etc)... and make sure you budget allows you to save.

Regards Mark

Rent paid is no more "dead" than interest paid (which is the cost of "renting money").

Seems to me that there is too much accommodation to rent these days. From what I see in South Wales the average rents seem to be dropping about

5%-10%, maybe thats happening elsewhere as well. It might be worth haggling a bit on the asking price.

Thanks for your advice. I live and work in an expensive region where I just fall out of the house market in the areas I want I want to live. I believe that the house price to salary ratio might improve so I thought I could rent and save while the gap closes. It's a bit of a gamble but I think that house prices have reached their critical mass in this area.

"Mark Blewett" wrote

*Everyone*??

"Mark Blewett" wrote

What about people who have already bought a house, just re-done the kitchen, & don't want / can't have any more kids?

"Mark Blewett" wrote

Surely it depends whether the house is increasing in value at greater than or equal to the interest rate paid, or not?

But paying interest (and we're talking mortgages, aren't we) gets you on the property ladder, doesn't it? Personally, having paid a mortgage for about 18 years or so, and a hell of a lot of interest, has made my on-paper "wealth" a hell of a lot more than it would have been had I been renting all those years. That's why I'm saying rent money is "dead".

David

I believe so..

I was using them as examples... how about a new car, saving for a holiday.. there are always costs which are not "day to day".. this is why I suggest saving.

True, but with mortgages at a record times salary level, prices falling 6 months in a row, above inflation increases in bills, reduced high street spending and record levels of debt.... I wouldn't bet on capital increase in house prices for a few years!

"Mark Blewett" wrote

Really? Bill Gates **needs** to save a third of his income? Why?? Whatever for??!

"Mark Blewett" wrote

... paid for already out of income, on hire purchase / loan / lease ...

"Mark Blewett" wrote

Some people don't go on holiday, for various reaons!!

"Mark Blewett" wrote

"Saving" is not necessarily a bad thing - but I seriously question why "everyone" should save exactly a *third* of their income, ignoring all the other factors which would affect this decision.

For God's sake, man, you must learn not to take generalisations too literally. For "everyone" read "most people". The "exactly" was, IINM, your own invention, and should be taken as a rough ball-park figure.

To buy (your example) a car on lease/HP/etc wastes a significant additional amount of income on other people's profit, and for most people it's not possible to pay for a new car out of income, it has to bought either on credit or from savings. The advantage with savings is that you save (groan) the difference between the high cost of borrowing from other people and the low cost of "borrowing" from yourself, with the twist that you "pay off" the "loan" from yourself before you even take it.

All you'd be doing is diverting some of your income into a buffer, so that you can use the stored funds on medium/long term luxuries instead of short term ones. The exact proportions will and should vary to suit personal circumstances, but I don't see anything vastly wrong with a split of one third (of after-tax income) on essentials (housing and basic food), one third on everyday luxuries, and the rest on medium/long term savings.

You also earn interest on your savings, which may not be a huge amount, butintegrated over the long term, buying stuff like cars or holidays or expensive toys from savings which have cost you 1/3 of your income, is bound to beat buying those same things on credit and paying off the loans well after the holiday's over, the toy's broken, the car written off, and taking up more than 1/3 of your income in loan repayments and interest.

Don't think of it as saving 1/3 of your income. Think instead of "living within your means" meaning "don't spend more than 2/3 on immediates".

Thanks Ronald, I could not of put it any better.

Regards Mark

"Ronald Raygun" wrote

So, the man with *zero* income but a large stash of gold/cash(etc), should spend no more than 2/3 of zero - ermm, nothing(!) - on "immediates"??! You are suggesting he should starve? :-((

I'd say that if he used (say) 1% of his initial huge stash of gold&cash each year, that he would still be "living within his means" (unlikely to live much longer than another hundred years) - even though his income is zero and he is not saving a penny. From your comments above, you disagree? ;-)

Very funny. I've already implied we have to apply the term "everyone" sensu lato, and for its present-purpose definition to make sense, it would clearly need to exclude people living off savings.

For someone whose sources of income have dried to a trickle, it's just as well there *are* savings to live off. All the more reason to have built them.

Oh no, the P word. Let's not go there.

"Ronald Raygun" wrote

The question is, though, what *other* people does "everyone" also exclude?

We both seem to agree that the person above, with zero income but high capital, is excluded. But there are many other types of people, whom some of us will agree should be excluded and others will disagree. Some of us will have the opinion that subset "X" should be excluded, others will believe that subset "Y" should be excluded - and so on.

In other words, what (you seem to be suggesting) the other poster was really saying, is: "everyone should be aiming at saving 1/3 of income, except those that needn't" - and whether they needn't or not depends on who is deciding! So in other words, no-one really needs to save at all!!

"Ronald Raygun" wrote

I'm not sure which "P"-word you mean - did you miss it out? :-(

Subsets? Cor, now we're getting into really heavy maths.

Let's just say "everyone" has a variable meaning, which must be tuned in such a way to ensure the proposition remains true. :-)

Everyone has their own most appropriate savings ratio. Average them all out to find a "typical" figure. The other poster is merely suggesting that this typical figure is probably in the vicinity of 1/3.

Pensions. The result of saving part of 1/3 of your income. The other part you'll have saved separately, part of which you'll have spent on fripperies.

"Ronald Raygun" wrote

;-)

"Ronald Raygun" wrote

If that were the case, then there would not be any point in making the proposition - because the meaning of the proposition would also vary with the definition of "everyone"!

"Ronald Raygun" wrote

Exactly! - and I'm just saying it needn't be "1/3".

"Ronald Raygun" wrote

... but using language to suggest that he thinks everyone (or at least most people) should be *at* that average, rather than either side. [He said "everyone should be aiming at saving 1/3 of income".]

It is like saying "everyone should be aiming at having two-and-a-half children" - which sounds quite absurd.

Nothing wrong with that, except slightly sloppy language. Everyone knows "everyone" doesn't really mean absolutly everyone, and "1/3" doesn't mean exactly a third. Just apply generous margins.

If you "aim at" 1/3 you might not end up there, but if you end up near there, you probably won't go far wrong, provided you're typical enough. -- Must get me one of those typical-APR personal loans for which nobody ever qualifies...

But it sounds absurd chiefly because you can't have fractions of children, not because it suggests you should aim for an existing average.

"Ronald Raygun" wrote

Of course, but for many people I'd suggest that they shouldn't even be

*aiming* there!

"Ronald Raygun" wrote

That is the big point - you need to be "typical enough". I don't believe that any rational definition of "everyone" *only* encompasses the "typical". I'd say something more like "most people" - certainly not "everyone" - YMMV.

"Ronald Raygun" wrote

I disagree - I believe the thing that is absurd, is saying that *everyone* should aim for the average - because different people have different outlooks & expectations etc.

I think that it's absurd to expect everyone to have the average number of children - and the fact that the average is fractional for this example just helps to show how absurd the notion of everyone being average really is!!

But, typically, most people *are* typical. :-)

You don't really think that "most people" doesn't qualify as a rational definition of "everyone", do you? Let's not analyse precisely what "rational" means, but surely in the sense that "everyone" is an exaggeration of "most people", "most people" is a rational definition of *that* "everyone". Generalisations, of course, as we all know, always involve exaggeration.

Oh, indeed, I agree with that. It *is* absurd that people should aim to have the average number of children, even if it should happen to be exactly two. What I'm saying, though, is that saying "..."

*sounds* absurd more as a result of the sheer impossibility of it than as a result of its undesirability. To me it seems to distract, and hence detract, from what you mean, not amplify it. But maybe that's because I'm not typical enough.

No, dammit, it's because *you're* not typical enough.