Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
I started my first job in London on a salary of £30k. It wasn't the lowest salary among my friends, but every month still ended with dinners of a hodgepodge of pasta noodles from the back of my cupboard and sauce that was a few days past the best by date.
It didn’t feel very possible to set money aside for the future when it felt so necessary for today. And to be honest, I didn’t, except through pension contributions.
I wish I would have, and on reflection, it was possible, even though it’s not easy.
A £30k budget
On a £30k salary, you are within the basic rate for income tax. That means after your personal income allowance of £12,570, you’ll pay income tax and national insurance fees on £17,430. Income is taxed at 20%, while national insurance is taxed at 8%. So, £1,394 will go to national insurance, and £3,486 will go to income tax. This will leave you with about £12,550, combined with your personal allowance to £25,120.
There are different ways you might pay into your pension, but we’ll assume that you’ll contribute 4% of your original £30k salary, equating to £1,200 per year after tax. This will then benefit from a pensions tax relief boost meaning an extra £1,500 in your pot, plus whatever your employer is paying in. Deducting your £1,200 contribution leaves you with a take-home pay of £23,920.
On a monthly basis, this means you have £1,993 coming into your account. So how do you budget this?
Depending on where you are based, living costs will differ dramatically. According to rental site SpareRoom, the average cost of renting a room in the UK is £748. This will come along with other costs, such as utilities and council tax. For this scenario, we will assume these additional payments come to about £200 per month. This may be increased if you are living alone. This leaves you with about £1,045 for the rest of your expenses.
If you spend £75 per week on food, this will eat up about £300 per month. Owning a car, or paying for public transport, will also average about £300 per month, according to the AA.
So how much are you left with? As an estimate, £445. Some of these funds certainly need to go to just enjoying life. So let’s say you set aside just £100 per month to invest. What now?
Where do investors start?
If you can commit to investing £100 each month, you also may be able to get a break on some of the typical fees investors pay. AJ Bell customers can benefit from lower dealing charges by setting up an automatic monthly investment of at least £25.
By investing in a stocks and shares ISA, you can ensure that it’s protected from tax. If you invest through a dealing account, you might have to pay tax on some of the gains you make through the fund performance.
There are a variety of options for investments when you get started, including stocks, bonds, and funds. Many people decide to begin their investment journey by using a tracker fund. This is an investment that helps investors get access to investing but attempting to track the performance of an index. Typically, these funds have lower fees than actively managed funds and they will adjust their holdings a few times per year. You can invest in a fund tracking a UK index like the FTSE 100, world index like MSCI World, or US index like the S&P 500, just to name a few.
Once you’ve set up your investment account, you can create a direct debit from your bank. This not only ensures that the payments are being made, but it also ensures that you are not accidentally using this money for other things.
Where will £100 per month get you?
If you can put aside £100 per month to put in the market, you could start to feel the benefits of compound returns. At first, the growth may seem slow. Let’s assume you can make 5% per year before charges through your investment.
After five years, you would have accumulated £6,800 before fees, £800 of which would be from your investment return. But when the numbers really begin to stack up is a bit further down the line. In 10 years, those investments would accumulate to £15,528 before fees, with your contributions accounting for £12,000.
But what if you waited another five years before you began investing? You may have gotten a few promotions by this point, and now have the ability to make £200 in contributions each month to catch up on savings. But how quickly can you really catch up?
It would take over 20 years of £200 contributions for you to catch up to the £100 contributions started five years earlier. This is because the compounding returns, over time, allows these investments to grow much more quickly. Although it may feel like a strain on the budget now, down the line it could equate to a much easier savings plan.
Years of £100 contribution | £100 contribution | £200 contribution |
|---|---|---|
5 | £6,800 | Investment begins |
10 | £15,528 | £10,200 |
15 | £26,729 | £23,292 |
20 | £41,103 | £40,093 |
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
