Married with a few bob

Financial Makeover NAME: TJEERD LEKKERKERKER AND EMMA FOUGMAN AGE: 28 AND 26 OCCUPATION: MANAGER, COMMERCIAL SHIPPING COMPANY, AND PASTRY CHEF

Tjeerd and Emma married a few months ago. They both work and live in rented accommo- dation in south London. Ideally they would like to buy their own home, but also plan to start a family in a few years time. They have pounds 20,000 in a savings account and no outstanding debts. Apart from their savings they have no other investments, pensions, or life assurance. From their joint income they pay pounds 550 per month in rent and they estimate that they can save pounds 500 per month.

The adviser: Fiona Price, managing director of independent financial and tax advisers Fiona Price & Partners, 33 Great Queen Street, London WC2B 5AA, (0171 430 0366).

The advice: Tjeerd and Emma have a number of financial planning issues that need to be addressed. First, they plan to buy a house in the near future, so money is going to be tight for the next couple of years. Buying a house is always more expensive than we anticipate, luckily they have quite significant savings, part of which they can use as a deposit. They may also want to carry out some home improvements so they should keep their money on deposit.

I would advise them to try not to use all of their savings for house purchase and hold some back as a cash reserve. A general rule of thumb is an amount equivalent to at least three months normal expenditure, which in Tjeerd and Emma's case is roughly pounds 6,000. The new individual savings accounts (ISAs) available from 6 April 1999 are the best home for this.

They should invest pounds 3,000 each in a mini cash ISA, which will give them the benefit of instant access to their cash and tax-free interest. If they have any spare money next year they should look at a mini equity ISA as a home for medium-term savings.

As far as mortgages are concerned, I would advise them to go for a repayment mortgage on a three-year fixed rate with no redemption tie in after the fixed rate period. This will help them to budget and also means they will not be locked into unfavourable rates in three years time if interest rates continue to fall. There are three-year fixed rate mortgages, with no tie in, available at rates of about 5 per cent. There are new deals being announced all the time so it pays to shop around. Do watch out for any compulsory extras.

Tjeerd and Emma had also expressed concern about life cover. A mortgage protection policy on both their lives would provide adequate cover for their needs and will keep their regular outgoings down.

As added protection I would include critical illness cover, which will pay a lump sum equivalent to the outstanding balance of their mortgage in the event of either of them contracting certain serious illnesses. For an initial sum assured of pounds 100,000 they should expect to pay about pounds 30 per month (go for a guaranteed rate rather than a reviewable one). Once they start a family they should increase their life cover significantly.

Another area that needs immediate attention is pension planning. Both of them have never been members of a company scheme nor have they made their own private provision. I would advise them to take out personal pensions immediately.

However, as they are going to have fairly significant outlays over the next few years, with the purchase of a new house and the prospect of starting a family, I suggest that they limit their contributions to about pounds 100 per month each initially. This amount will help to discipline them into making pension contributions but will not overstretch them.

Tjeerd should make sure that every time he receives a pay rise he should also increase his pension. As Emma plans to work part-time once they have children she should be able to maintain a premium of pounds 100 per month even on a reduced income. I would go for level-costed plans, where the charges are spread over the term of the contract rather than taken "up front", and perhaps transfer to the new stakeholder pensions when they become available in 2001.

Finally they need to consider permanent health insurance (PHI), which will provide them with an income when they become ill. They will be entitled to statutory sick pay, however, at pounds 59.55 per week (from 6 April) it is unlikely to go very far. The aim is to provide adequate cover for minimal cost.

The way to achieve this is by having as long a deferment period as possible (the deferment period is the number of weeks you must be ill before the plan pays any benefit).

The first thing they should do is check out how much sick pay they will receive from their employers. Any personal PHI plans should "kick in" once the company benefit stops. To reduce costs further add in the three months emergency cash reserve to the equation.

The steps I have laid out should allow Tjeerd and Emma to buy a house, provide adequate protection, and start making provision for their retirement, without overburdening them. And they should still have enough at the end of the month to build up more short-term savings to help when they start a family.

If you would like a free financial makeover, potentially worth hundreds of pounds, from The Independent's panel of independent financial advisers, please write to Andrew Verity, Free Makeover, The Independent, One Canada Square, Canary Wharf, London E14 5DL. You must be willing for your name, edited financial details and photograph to appear in the newspaper

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebookNow available in paperback
ebooks
ebookPart of The Independent’s new eBook series The Great Composers
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Recruitment Genius: Key Account Manager

    Negotiable: Recruitment Genius: A really exciting opportunity has arisen for a...

    Recruitment Genius: Multi Trade Operative

    £22000 - £24000 per annum: Recruitment Genius: An established, family owned de...

    Recruitment Genius: Customer Services Assistant

    Negotiable: Recruitment Genius: An exciting position has risen for a Customer ...

    Recruitment Genius: Tour Drivers - UK & European

    Negotiable: Recruitment Genius: This is a fantastic opportunity to join a is a...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project