Wealth Check: 'Am I putting enough cash away for the future?'

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Case notes

Jenny Bizley, 27, research scientist, Oxford
Income: £27,900, to rise incrementally.
Monthly spending: £370 on bills, £449 on mortgage and £100 on a horse. Savings: £7,500 in a cash ISA; £200 in a saver account.
Property: Flat bought for £190,000. Mortgage of £78,000.
Pension: Contributes 6.35 per cent of salary. Employer contributes 14 per cent.

Jenny Bizley from Oxford has recently started working full time as a post-doctoral research scientist, after completing her Masters and PhD. Fortunately, Jenny's studies were fully funded, so she does not have any student debts or loans to worry about. The area of work she is in and wants to stay in, however, does not have many permanent jobs, and contracts of three years (like the one she has now) are standard.

Jenny recently received a small salary increase, but she feels she has very little money to spare and is concerned she may not be saving enough for the future. She is particularly worried that she may have started her pension too late because of her extended time in education. She wants to know if she should be contributing more to this or to her mortgage repayments.

She has £7,500 of savings in a cash ISA, and wonders whether this would be better invested elsewhere. Ultimately, Jenny says she would like to have enough money to live comfortably, go on interesting holidays and eventually to be able to afford a larger home.

We asked three independent financial advisers for their advice: Andrew Merricks of Skerritt Consultants, Martin Kilroy from Savills Private Finance and Ben Yearsley from Hargreaves Lansdown.

MORTGAGE

Jenny is tied into her mortgage of £78,000 with the Halifax until her five-year fixed rate ends. There are cheaper deals around, says Kilroy, but she would have to pay early repayment charges of around 3 per cent of her mortgage account if she switches lenders and this would cancel out any savings made by opting for a lower rate of interest. His advice is to review the mortgage towards the end of the tie-in period to ensure Jenny does not end up paying the lender's standard variable rate.

Kilroy agrees with Jenny that if she contributed the extra money from her salary increase to her mortgage, she could reduce her loan term to 25 or even 20 years. However, he suggests she could also consider putting the money towards home improvements, which should increase the saleability of her home and the eventual sale price. If Jenny does not want to dip into her savings, the Halifax may be able to grant her a further advance on her mortgage, with the additional funds qualifying for a special rate. Halifax offers a two-year fixed rate at 5.55 per cent with a fee of £399.

This additional loan would be up for renewal around the same time as her main mortgage, at which time she could combine the two. Yearsley says that putting the extra money towards her existing mortgage should be given some serious thought, as this will save significant amounts of interest.

PENSION

Both Merricks and Yearsley feel Jenny is not in as bad a financial situation as she believes. Merricks points out that she is probably contributing more to her pension scheme than most, and says this shows the benefit of seeing savings as an obligatory monthly outgoing. He suggests that while Jenny may struggle if she had to save 6.35 per cent of her salary each month, it is relatively painless when deducted at source from day one in your job.

As a result, Merricks feels Jenny does not need to consider putting any more into her pension at the moment.

SAVINGS/INVESTMENTS

The first thing Jenny needs to do before she starts any other savings is to get her current account in credit, says Yearsley. Although her overdraft is currently interest-free, it will not always be, and it is good to get used to keeping your account in credit. Her salary increase could help her do this.

Merricks thinks she should really try to find, if possible, about £50 a month to put towards a stocks and shares ISA to compliment her cash ISA. He says she may also want to consider moving £2,500 from her cash ISA into a stocks and shares ISA straight away.

These funds will work a little bit harder and should in time deliver better returns than a cash savings account. Merricks believes keeping £5,000 in cash should be enough for any emergencies. Although Jenny says she is averse to investment risk, Merricks points out that it is all about balance, and points out that leaving all her money in cash can be a risk in itself. A good fund she could invest in is Ted Scott's F&C Growth and Income Fund. Yearsley suggests a fund such as Invesco Perpetual's Income Fund, but warns that Jenny must be prepared to invest for five years at least, and accept that while this could give her a good return it could also go down in value.

None of the advisers think Jenny should get life assurance, because she is single with no dependants, but Merricks and Yearsley suggest she should look into some form of protection to cover her mortgage.

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