Wealth Check: A case of the bricks and mortar blues

Each week we give 'Independent on Sunday' readers a financial makeover

The problem

The problem

It's a tough life for people trying to get on the property ladder, as Anna Valdinger will testify. "My priority is to buy but it's such a nightmare. The prices, particularly here in London, are absolutely ridiculous."

She pays £430 a month to rent a one-bedroom flat in Hackney. "I've been looking at the possibility of buying with a friend but we have yet to go to mortgage brokers or look at properties.

"It really is up in the air at the moment and depends on where the market goes."

Anna would use the £7,500 in her Abbey Direct Saver savings account as part of a joint deposit. The sum is growing too: every month she adds £150 to the account, which earns 3 per cent gross interest. She has other savings in the shape of £1,500 in an equity individual savings account (ISA) with Fidelity, but is unsure of its performance.

Although a buying a flat is her main aim, Anna is considering whether to use her money elsewhere. "I'd also like to have laser eye surgery or even go travelling for a year.

"Although I'm saving regularly," she adds, "I'm still not sure if I'm getting the best value."

Her long-term savings plans are also uncertain. Although she has toyed with joining her company's pension scheme - a Standard Life fund in which her own contributions will at least be matched by her employer - she has yet to take the plunge.

Most months, she ends up in the red with an authorised £800 overdraft, but she is confident about managing her income during the next 12 months.

She has cut up her credit cards and won't touch store cards. "I don't trust myself," she admits. "I do spend too much and pay a lot of money on bills, which can really mount up.

"At times, I think I have a steady handle on my finances, but quite often I find myself skint at the end of the month."

The 26-year-old's only other debt is £5,000 worth of student loans, although she has managed to defer full repayment until next April.

She has neither income protection nor critical illness cover and is unsure of any death-in-service benefits at her firm.

Interview by Sam Dunn

The patient

Anna Valdinger, 26, lives in Hackney, London.

Job: editorial manager for a literary agency.

Income: £20,000 to £25,000.

Savings/investments: £7,500 in an Abbey savings account;£1,500 in a Fidelity ISA.

Goal: to buy her first home.

The cure

Before arranging her finances, Anna must make the decision whether to buy a home or use her money for something else, says Jennifer Storrow of independent financial adviser (IFA) Gee & Co.

Her cash must work harder and earn more, says Philippa Gee of IFA Torquil Clark.

Her savings habit is to be applauded, says Kevin Anderson of IFA Budge & Co. He recommends meticulously listing one month's outlay and using it as a template to cut out unnecessary expenditure.

Property

Rent of £430 a month would mean Anna can afford a £85,000 home loan. "A joint mortgage may be the best option," says Mr Anderson. "However, she needs to consider this carefully because it can get complicated if she falls out with her friend or wants to move."

Ms Gee says Anna should first try living with her proposed co-buyer in rented accommodation, drawing up rules on sharing the costs of maintenance, decoration and spending. After this, she can look at what is available on the London property market to get an idea of the likely mortgage deals on offer.

Savings

The Abbey account offers only 2.34 per cent after tax, says Ms Storrow, so it would be better to put up to £3,000 in a mini cash ISA. Abbey's own such product offers 4.85 per cent with instant access.

Anna could then move most of her other savings into an account offering more interest, says Ms Gee. Alliance & Leicester's online saver account, for example, pays a variable 4.85 per cent gross.

It might also be worth using some of her cash to wipe out the overdraft. "She is likely to be paying a higher rate than on her savings," adds Ms Gee.

Investment

Anna doesn't know in which sectors Fidelity invests her equity ISA money. "She needs to find out more," says Ms Gee, "since she could be in a fund that doesn't reflect her requirements and therefore needs to switch." An up-to-date valuation from Fidelity will give an indication of how her fund has performed and help with such a decision.

However, both Mr Anderson and Ms Storrow think Anna should stay put. "Investments are for a minimum of five and preferably 10 years," stresses Ms Storrow.

Retirement

Ms Storrow thinks Anna should join her company pension scheme: "Pensions are [in effect] pay and Anna has turned down two years of extra money." But Ms Gee believes that property is the pressing concern. "If she is serious about the idea, she needs to save more money towards a house purchase. "Once she has achieved this, the longer-term pension investment can be looked at."

Protection

Anna should check with her employer to see if there are death-in-service benefits, and what kind of sick pay scheme the company has in place. If there is none, she might look at an income protection policy, suggests Mr Anderson.

If you would like a financial makeover, write to Melanie Bien at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email m.bien@independent.co.uk