Money makeover; Don't ask me to cut back on eating out

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NAME: Theo Nicholaou

AGE: 29

JOB: doctor at a London hospital

SALARY: about pounds 32,500

Theo says he lives almost from week to week as far as money is concerned. His income is relatively high and his rent at the doctors' residence is very low, but a healthy social life costs him more than pounds 300 a month. He aims to buy a flat and has pounds 15,000 for a deposit, but he wants to build up a cash reserve as well. "I want to get my affairs into some kind of order ... should I increase my pensions contributions, and should I be doing some sort of savings scheme?" he asks.

Theo reckons he could cut his social life down. But the pounds 120 a month he spends in restaurants is not negotiable. "I have a friend who is as much of a foodie as I am - whenever there's a new restaurant, we have to go," he says. At the moment, he is working through two medical staff agencies, rather than for the NHS as he was before. He's working towards the exams which will put him on the road to becoming a consultant, and says working for an agency frees him up for revision.

Amanda Davidson is a partner at Holden Meehan, independent financial advisers (0171-692 1700). She says:

"Theo openly confesses he has a good lifestyle and is not prepared to compromise on too many of his commitments. But he'll have to make some compromises when he takes on a mortgage. And he needs to impose a discipline of saving seriously. In theory, he has plenty of disposable cash. I think he should be looking to put at least 10 per cent of his income into pensions savings. And he should be saving for the medium-term, using PEPs and TESSAs. These are basically savings plans which go on for five years or more. They are also extremely tax efficient, which is important for Theo as a higher rate tax payer. He should aim to put between pounds 100 and pounds 200 a month into PEPs and TESSAs. But right now might not be the best time, because if he does buy a flat, this will cost more in the first year or so. To give him more of a financial cushion he should save money in a building society for short-term needs. At the moment, because he works for an agency, Theo is not in an occupational pension scheme. He anticipates joining the NHS again in the next six months or so, and then he can resume the NHS pension which he was a member of before. Theo should do this as soon as he can - the NHS pension is based on final salary at retirement, and there will be good benefits at a very reasonable cost.

His pounds 1,000 Visa card debt should be paid off as soon as possible. This is a priority over and above saving for the future. He is paying a horrendous amount of interest, far more than he is gaining on his deposit account. As to the interest he is getting on his Abbey National account, I am afraid that if it is the Instant Saver Account, this is just 3.8 per cent gross. Since he pays higher rates of tax on this, it works out as a mere 2.28 per cent net. Postal accounts might be better, even if the money is only going to be in there for a short period. The Alliance and Leicester has a good one which pays 7.25 per cent gross - nearly double the rate he gets at the Abbey National. Theo says he's going to take a serious look at health insurance when he buys a property. He needs to make sure there are resources to repay the mortgage if something happens to his health. A critical illness policy wouldn't be a bad idea as well as the health insurance, so a lump sum can be provided in the event of a particular illness.

Back to his mortgage - Theo's bank has said he can borrow pounds 110,000 from them. On his earnings which are currently about pounds 32,500 this is just over three times income - the normal multiple. Theo should shop around to see if he can get a better deal than his bank can offer, even though his bank is likely to be much more flexible. Lenders usually view doctors favourably."

Rachel Fixsen

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