12 January 2019

The best things in life aren’t free: Royal London calculates key life goals will take 25 years to pay for

5 min read

 
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Becky O'Connor

Personal Finance Specialist

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Anyone planning how to meet their big life dreams in 2019 take note: the best things in life are very much not free. That’s if your aspirations are on the conventional side, anyway.

 Royal London, the mutual insurer has calculated that the major life goals of going to university, buying a house, getting married, having two children then retiring comfortably add up, on average, to an eye-watering £566,659 over the course of a lifetime. On a median UK annual graduate net salary of £22,421 [1], if you were spending your salary only on the fulfilment of your dreams, the insurer calculates these goals would take 25 years to pay for.

That figure includes typical mortgage interest but is without any interest from loans, credit cards or overdrafts added – and assuming you stay in the first home you buy. Adding a second property purchase and associated stamp duty into the mix – as well as saving for your children's futures on top - could push up the total bill for a dream life to more than £1 million.

The insurer suggests a mixture of long-term planning, regular saving and cost-cutting where possible to manage the cost of your dreams.

Royal London took the typical cost of the big six traditional life goals, as follows, before dividing the total by £22,421:

-  going to university, if you have to make the average student loan repayments (based on some of your debt remaining unpaid after thirty years) and have typical maintenance costs, will cost you approximately £23,000[2]

-  buying a house with a 10% deposit and paying the average cost of a first-time buyer property, which is £195,404, on a loan with a 3 per cent fixed interest rate for 25 years – total cost of £250,148[3]

- getting married, if you spend the average cost of a wedding, which is £30,111[4]

-  having two children at a cost of £150,000 (the average cost of raising a child is £75,000[5])

- then retiring comfortably: the pension pot most people would need to live comfortably is £300,000, which would require a total personal contribution of £113,400 between the ages of 25 and 67, according to Royal London

Becky O’Connor, personal finance specialist at Royal London, said: “Put in these terms, the best things in life don’t look so free after all. Big life goals come with a price tag to match. With the exception of retiring comfortably, the irony is that many of these are goals people look to achieve before they are 40 – a time when your earnings are likely to be on the lower side and you will struggle even more to achieve them. This is one reason we are collectively so dependent on debt for big ticket purchases like a first home and university fees – the costs are simply too high upfront at the time in your life you need to pay.”

“Everyone has different goals and dreams, but looking at a set of conventional goals that includes things like buying a home and retiring comfortably and then comparing it to typical earnings, we can see just how difficult it is to make your long-term dreams a reality.”

How to achieve your big life goals:

“The key to achieving life goals, first off, is to know what you would like to achieve and then plan for it, realistically acknowledging that you need something to live off in the meantime, and to think further ahead than you are perhaps used to thinking.

“We tend to only think about saving – apart from pensions - as something we do for the year ahead: for holidays, Christmas, and other short term goals. But being mindful of long term goals when planning your short term spending and saving is useful - you can set aside any extra left at the end of the month towards them.

“Once your savings mount up – you can start dividing them into pots, with different places for different purposes. Always make sure to make use of any tax-free allowances.

“And of course wherever you can cut big costs significantly, such as on a wedding, or on baby equipment, then do it – these are only average spends after all, and a bit of frugality could go a long way with some of them.”

Notes to Editors

[1]Average graduate starting salary is £28,000 giving net salary of £22,421 – assumes salary stays the same and assumes no periods out of work https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/ashe1997to2015selectedestimates

[2]Source: Institute for Fiscal Studies Estimating the public cost of student loans https://www.ifs.org.uk/comms/r94.pdf

[3] Average first-time buyer house price source: https://www.gov.uk/government/publications/uk-house-price-index-summary-september-2018/uk-house-price-index-summary-september-2018#buyer-status-for-great-britain, less 10 per cent deposit, with mortgage at 3 per cent fixed rate for 25 years. Total mortgage debt, £175,864 + total interest £74,284)

[4] https://www.bridesmagazine.co.uk/article/average-cost-of-wedding

[5] http://www.cpag.org.uk/sites/default/files/TheCostofaChildin2017.pdf, p 11.

For further information please contact:

Becky O’Connor, Personal Finance Specialist

About Royal London:

Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.