Wealth Check: 'Am I on the right savings track before I move to Spain?'

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The Independent Online

Georgina Baker has just completed her first year working as a marketing assistant for an investment company in London. After graduating from university, she has £16,000 of student loans to repay, but hopes to be able to save enough money for a deposit for a flat in London by the age of 30.

Living in south-west London, she pays a hefty £525 a month in rent, and has yet to make any substantial investments. She is concerned about how she should balance paying off her debts at the same time as saving for the future.

Also, in two years she may be moving to Spain with her company for a number of years.

We asked three independent advisers for their suggestions: Ben Yearsley, of Hargreaves Lansdown; Philippa Gee, of Torquil Clark; and Colin Jackson of Baronworth Investment Services.

Case notes: Georgina Baker, 23, marketing assistant, SW London

Salary: £23,000 a year, equating to a monthly disposable income of just over £1,500.

Debts: £16,000 student loan: Georgina believes she is being charged interest at a rate of 4.5 per cent a year.

Savings: £2,000 invested in a mini cash ISA, saving £100 a month.

Property: Would like to buy her own home within the next few years, but currently rents at a cost of £525 a month.

Pension: Georgina is not currently making any pensions contributions.

Monthly outgoings: around £1,335 on rent, bills, student loan and general living expenses, plus the £100 paid into her savings account.

DEBTS

Georgina should check the interest rate she is being charged on her student loans immediately, says Ben Yearsley. She thinks she is paying around 4.5 per cent annual interest, but student loan rates are supposed to be linked to inflation, so the rate should only be 2.5 per cent or so.

That said, Georgina should not panic about the size of her debts. Assuming she has misunderstood the cost of her debt - and she is being charged only 2.5 per cent - a student loan is a very cheap form of borrowing. If she were to give up more of her salary towards paying it off, she would have less spare cash to devote to her plan to buy a property.

The student loan should not make much difference to the size of any future mortgage Georgina is able to take out, adds Philippa Gee. And since she is currently benefiting from a higher interest rate on her savings account than her student loans, there's no rush to pay them off. Right now she should put her debt concerns aside and simply maintain payments to the Student Loans Company, Gee says.

SAVINGS

By opening a cash individual savings account (ISA) and paying in £100 a month, Georgina has got off to a good start with putting money aside for the future, says Gee. Cash ISAs are tax-free bank and building society savings accounts into which it is possible to invest up to £3,000 a year.

However, once again, she should check that the rate of interest is in her favour, Gee warns. The Portman Building Society, for example, offers a 15-day notice account and currently pays 5.55 per cent annual interest, so Georgina may be able to get a better deal by moving her money there.

Colin Jackson, meanwhile, thinks that because Georgina has given herself seven years to buy a property, she has time to adopt a higher risk strategy, investing on the stock market, in the hope of achieving higher returns. An equity ISA would enable to do this and still earn tax-free profits and income.

There is a chance that the ISA could fall in value, but over time, the stock market has tended to outperform in the past. An independent financial adviser can help Georgina to find a suitable fund for her investments, Jackson adds.

BUDGETING

Georgina needs to take tighter charge of her expenses, says Jackson. She spends almost as much as she earns after tax each month and should focus on cutting her living expenses. This would enable her to boost her savings.

In fact, some money may already be going begging, because there is around £170 of her monthly take-home pay unaccounted for in her living expenses.

Yearsley suggests Georgina makes a detailed tally of where her money goes for a month, noting down exactly what she is spends - almost to the last pound - to see where she is wasting cash and whether it can be used for a better purpose. Websites such as www.moneysavingexpert.com can offer some useful tips.

PROPERTY

There are lots of ways Georgina can climb onto an ever more challenging property ladder. A good option for some first-time buyers is to rent spare rooms out, says Yearsley.

Under the HM Revenue & Customs's rent-a-room scheme you can earn up to £4,250 a year from renting a room out without paying tax. But Georgina needs to be confident she can still make repayments if the rent dries up for any reason.

Georgina should also consider buying with friends, says Jackson. This allows those with limited means the chance to get on the property ladder. But a solicitor must be asked to draw up an agreement between all parties, so that everyone is aware of their obligations to each other. This is crucial because if one of the parties walks away from the agreement or defaults, those remaining are responsible for the mortgage.

PENSIONS

Gee is concerned Georgina has not made any pension arrangements. It is highly likely her employer has a scheme she can access and Gee advises she raises this question with them right away. Her property plans may limit her own contributions, but if she pays in a small amount and benefits from her employer's offerings, she will be in a much stronger position when she comes to give pensions more thought in the future.

Yearsley suggests that in an ideal world, you should invest half your age as a percentage of your salary in a pension - which for Georgina would be about 11 or 12 per cent each month. Although this might be unrealistic at the moment, it would be worth starting a pension, even if she only makes a small contribution.

WORKING OVERSEAS

All three advisers say Georgina should not let a move to Spain affect the way she saves - she will be able to maintain her UK savings while she is abroad, though she will need to check her tax status. She may even be able to save more if her rent comes down while abroad.

Gee says Georgina's career is her most important asset. She should consider whether any further qualifications might help her leap ahead in future.

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