John asks: “I want to move to London with my girlfriend. But, can I afford to live in London?”
Question 4 – Can I Afford To Live In London? – Shownotes
Today’s question comes from John:
I’ve recently landed my first graduate job in Cambridge, about 50 minutes by train from London. My girlfriend has just got a job in London, and ideally we’d like to move in together. The place we’re considering is £350 each per month, and my commute by train will cost £450 per month. My salary is currently £25.5k, and I will be getting a £2000 bonus for joining the company. My student loan repayments will start with my new salary and my credit card should be paid off before I plan to move. So my question is, with my salary, is it feasible to move into London and commute from there to work?
Let’s state the obvious first John. Clearly, it will be cheaper to live in Cambridge and for your girlfriend to commute the other way, but if you’re young and want to enjoy everything that London has to offer, then this may not be an option for you.
With a salary of £25,500, we can work out your net pay each month. Let’s assume a 5% contribution to your employer pension – see question 1 to see why I’ve included this.
We’ll also assume that you will repay the minimum on your student loans (which will be 9% of your salary above £21k on the old repayment schedule). Then, your monthly take home pay will be around £1,580 per month.
I like to use a rule of thumb that says that you shouldn’t spend more than 25% of your take home pay on your housing costs. I’ve seen 33% used, but in my opinion, if you can get that down to 25%, that usually leaves more space for saving, investing and spending on the things you really want (rather than on space in your house that you never use, for example).
Based on £1,580 per month, that rule of thumb implies that your rent should be under £370pm, which it will be.
However, you then have a BIG CHUNK of expenditure going to your commute (£100 more you’re your rent). Spending over 25% on your net income on commuting is a lot. However, this is something you may want to discuss with your girlfriend. It is completely up to you both, but I would feel that splitting your total commuting costs between you evenly seems fair if you are living in London rather than Cambridge so that she is closer to her work.
The real answer for you both will come, as it so often does in personal finance, when you create a very detailed budget. Create a monthly budget each based on your past 6 months expenditure, and then flex it to take out the things you think won’t be there when you move to London, but include estimates of future costs that you don’t currently have.
Once you complete that, you’ll be able to easily see if, at the end of the month, you actually have enough money to “live” in London, with the emphasis on LIVING, rather than just staying in your flat every single night eating dry Tesco value pasta! 😉
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