I’ll say it again: you won’t get rich working for “the man”. It’s a sad truth because it’s so at variance to what most people are doing. But it is true, and here’s the proof… Fair warning, this may be your wake-up call!
What we’re going to do is compare the average salary to house prices
The median full-time salary in the UK is £33,000 (November 2022, ONS via standout-cv.com). If you want the (lighthearted) technical differences on mean/median/mode, read my article here.
Let’s get into it…
This salary results in a rough take-home of £26,462.40 (thesalarycalculator.co.uk) – and note this calculator isn’t including pension, which is can be up to 5% of your gross income (trust me, I’m an accountant… It’s HMRC legislation!).
The cost of a house in the UK is £296,000 (£316,000 in England) as of October 2022 (ONS).
If you need a 10% deposit in order to get a mortgage, you need £29,600 now, plus perhaps £5,000 in admin fees (legal checks, moving costs, assuming no property tax because you’re a first-time homeowner), so need to have saved up £34,600.
An estimate for monthly costs as per Numbeo is (at time of writing) £700.70 for a single person excluding rent. Rent is plus £691.27 if they’re being prudent and living outside of the city centre. This is saving over £200 per month compared to £901.69 inside the city centre. Total current costs would be £1,391.97, compared to a take-home pay of £2,205.20. That’s £813.23 per month that could go into savings (but realistically with pension etc will be less).
The amount that needs to be saved up, £34,600, divided by what can be saved each month, £813.23, is the number of months it will take to save this pot up = 43. Actually 42.546389…. but you get the idea. Let’s call it a round 43.
That’s over 3.5 years of living pretty prudently in order to save up enough for a deposit.
Let’s say the sale has gone through and you have your house…
You own 10% and the bank owns the remaining 90%.
Using the Nationwide mortgage calculator at time of writing, your monthly mortgage payment would be £1,563.86 per month. This is if you decided that the rates are currently quite high so you’ll use a rate tracker rather than locking in your rates and only commit to the next 2 years.
So you’re swapping out your rent of £691.27, plus what used to be your £813.23 savings, and that total (£1,504.50) and you’re still not quite there. Do you see how tight that is?
Let’s say everything stays constant, and there are no swings in the economy. You pay £1,504.50 for every month of every year for the 25 years your mortgage is over. You’ll end up paying £451,350 for your original £296,000 house (of which the bank only owns £266,400). Interest you’re paying is £184,950 – an extra 69.4%. That’s painful.
Urgh.
You’ll be spending the best working years of your life paying for your house. If you go in with a partner or friend, that definitely helps, but you’ll still be racking up a lot of interest. The longer the period of your mortgage, the more interest you pay.
If you start working seriously towards this goal at 24, you’ll be in your house at 27.5. All things being equal, you’ll then have paid it off at 52.5. So, again assuming no massive pay rises, you’ll be able to save £1,563.86 per month until you retire. Say you retire at 65, you’ve got 12.5 years of saving, resulting in £234,579 in your savings pot. 86.7 is the modal age of death (ONS 2020 and getting morbid – here’s the link to my explanatory article again).
That’s 260.4 months your £234,579 needs to stretch over, giving you £900.80 per month.
Now, that doesn’t include any work pension or state pension, so you’ll probably have more going on as well, but this just highlights the need to be sensible with your money: you need to look into savings as early as possible, and perhaps even investments. Make your money work for you!!!
Conclusion
You won’t get rich working for the man, but you can make a living and buy a house. Remember, £33,000 isn’t a small amount of money either – it’s a fair average!! A lot of people are in this boat, but being aware as soon as possible (it’s never too late to start to think about it) is the best way to go about changing – if that’s what you want.
This is such a downer so far – sorry about that!
But the reason this is such a downer is that it’s the harsh reality so many of us are facing – especially in a time of rising bills all across the board. Don’t take this information as a downer though. Take from it that there are other ways of going about living, and maybe this is your time to think about doing what you truly love.
The reality is that you won’t get rich working for the man. But with that in mind, take a moment to step off the hamster wheel and consider what you want to do with your life and why. Do you want to get rich working for the man? Is that your goal at all? Riches? Working for the man?
Write that book, sing that song, sell those cupcakes… Whatever makes you happy.
We’ll be publishing some more content on finances and all that sort of fun stuff. We’ll try not to get too deep in the specific detail unless it’s important (or you want it because you’re sad too 😉), so keep your eyes peeled and let us know what specific topics you want!
✌️
Click here to return home.
Click here to learn some more about us and what we’re doing because we want to live our lives in a way that both makes us happy and makes us a living!
And click here for our Amazon recommendations (affiliate link).
