Milestone savings

While life milestones are undoubtedly special moments, the reality is that they often come at a financial cost.

At a time when our finances are increasingly squeezed, money.co.uk have taken a look at how expensive such milestones are and how this has changed. 

If you’re saving money for your retirement or an upcoming milestone such as a wedding or a new baby, start by comparing savings accounts to find the best account for your money.

What are the most expensive milestones?

1. Saving for retirement (£238,146)

Looking at seven major life milestones, the most expensive by some distance is saving money for retirement. 

Based on the average life expectancy of 81 and average wage (post-income tax) of £22,708 the average amount required for retirement is £238,146. However, how much you need to retire is hard to predict, as it largely depends on your lifestyle and what you’ll be comfortable living on.

With the amount required for retirement being so much higher than any other saving goal, the way we save for pensions is obviously a little different to other milestones.

There’s the State Pension, which pays everyone £185.15 per week, but most people also pay into a separate pension plan too. 

There are two types of private pensions, some of which are based on how much is paid in and some based on your salary. Defined contribution pensions are paid into by either you or your employer. The money is then put into investments like shares. With a defined benefit pension you’ll be paid based on the rules of your plan. For example, they’ll usually take into account how long you’ve worked in your job and you’ll receive a guaranteed retirement income each year. They can either be workplace pensions, set up by your employer, or private ones arranged by you.

There are other ways to save for retirement too, such as a Lifetime ISA or other savings accounts.

2. First home deposit (£40,424)

Estimated years to save: 8 years, 10 months

The next most expensive landmark moment is putting down a deposit on a house. Based on the current average property price (£256,660) and a cash deposit of 15%, this would cost around £40,000 (after Stamp Duty).

Again, this will depend on your own circumstances such as where you’re buying and whether you can afford to put down a bigger mortgage deposit.

Remember though, to secure a mortgage you need more than just a deposit. You’ll also need to prove that you’ll be able to keep up with the monthly mortgage payments by earning a certain wage, depending on how much you’re borrowing.

If you are wondering how to save for a house, you can increase your savings for a mortgage deposit with a Lifetime ISA, where the Government will add 25% to your savings, to a maximum of £1,000 a year.

3. Home extension (£34,000)

Estimated years to save: 7 years, 5 months

Rather than moving home, you may decide to make additions to your own, but doing so can be costly.

It’s estimated that a home extension can cost up to £34,000. Other home renovations can also prove to be costly too.

For example, a new roof can cost up to £12,000, a new kitchen is around £10,000, while a new bathroom or garage can cost £6,000.

Which milestone costs have increased the most?

1. First car (97%)

2012 price: £9,795

2022 price: £19,330

Estimated years to save (2012): 2 years, 10 months

Estimated years to save (2022): 4 years, 3 months

The cost of buying a brand new Ford Fiesta, the UK’s most popular car, has almost doubled in the last decade, from £9,795 to £19,330. That’s more than any of the other milestones on this list.

On top of this, the estimated time it would take to buy a Fiesta also increased, by over a year, from 2 years, 10 months to 4 years, 3 months.

Despite its popularity, the Fiesta is set to be discontinued in the next twelve months, as Ford moves towards electrification.

2. First home deposit (86%)

2012 price: £21,741

2022 price: £40,424

Estimated years to save (2012): 6 years, 4 months

Estimated years to save (2022): 8 years, 10 months

As well as being the second-most expensive milestone today, putting down a house deposit also has the second-greatest increase in cost.

The average deposit cost (again based on a 15% deposit) has gone up by 86% between 2012 and 2022.

When considered alongside wage increases, the average time it would take to afford a deposit has increased by more than two years, from 6 years, 4 months to 8 years, and 10 months.

With the average person buying their first home at the age of 32, this means that you would need to start saving not long after turning 23.

3. Retirement (53%)

2012 price: £156,090

2022 price: £238,146

The cost of retirement has gone up by just over half in the last ten years, from £156,090 in 2012 to £238,146 today.

This has partially been affected by the life expectancy increasing from 79 to 81 in that time, meaning people have slightly longer to save for in retirement.

How to save for a life milestone

• Set your goal clearly - To begin with you need to know precisely what it is you want to save for so you can plan how you will achieve this. For example, are you looking to save for a house deposit or a new car? Each of these goals will require a different saving strategy. For example, when saving for a house it can be useful to use a Lifetime ISA to help boost savings.
  

• Set a deadline - Following this, you should set a deadline so you know the exact time frame you have to save your desired savings goal. Each goal will have different deadlines depending on what they are, so it's important to allow yourself enough time to save without cutting yourself too short.
  

• Create a saving plan - Set out exactly how you intend to reach your goal. This can include how much you want to save each week, month, and year till you reach your goal. This should be something that is flexible if your circumstances change, the amount you set aside can be increased or decreased depending on your situation throughout the saving time frame.
  

• Set up a new savings account - Think about creating a dedicated savings account for the savings goal. This will allow you to keep any money you save completely separate from any other funds. It will also allow you to earn interest on the money you do save. Savings accounts where you can't access your money until a certain time will have higher interest rates as money can’t be moved in and out regularly. You can compare savings accounts here.
  

• Track your goals - Keep track of your progress and be sure to celebrate and continue to motivate yourself to keep working towards your goal. Also, it is important to regularly compare savings accounts to make sure your current saving plan is best for your current circumstances.
  

• Break the goal down - Striving towards a large saving goal may be overwhelming. Therefore, try breaking it down into smaller, more manageable chunks to make it easier for you to process and make sure you celebrate reaching each small milestone. This will make reaching the saving finishing line more realistic for you. 

The best long-term savings accounts

The right savings account for you will depend on what you need it for. For example, if you’re saving to build an emergency fund, then you need to have a savings account that allows you to easily access funds. In these instances, an instant or easy-access account is the best option.

Alternatively, if you would like to put away money regularly but without a savings goal in mind, then you should look at regular savings accounts like a cash ISA.

These savings accounts allow you to save up to £20,000 a year, without paying tax on the interest.

But if you’re saving for a particular milestone such as those above, then an option to consider is a notice savings account.

These savings accounts only allow you to access the money if you really need to, so you have to wait between 30 and 120 days to withdraw. The benefit of these savings accounts is that you’ll usually get higher interest rates.