Wealth Check: 'Can I afford to move out of my parents' home?'

Mark Scouller, 25, is keen to move out of his parents' house in Flitwick, Bedfordshire and into his own home in London. But until he clears his £5,000 debt, he is going nowhere. "I recently moved back in with my parents while I save to move to London," Mark says. "But I don't know whether to use my savings to pay off my credit card and other bills or to pay it off month by month and continue to save up for my move."

Case notes

Income: Mark earns £27,000 a year as an assistant merchandiser.
Monthly outgoings: he pays £500 in tax and national insurance, £80 in regular savings, £220 to his parents for living expenses, £360 in travel expenses, as well as around £1,100 a year on holidays.
Debts: Mark owes £3,500 on credit cards and £1,500 on utility bills.
Pension: £0.
Savings: Mark has around £3,000 in an ISA and £3,500 in a share-save scheme.
Mortgage: £0.

Three independent financial advisers offer Mark their help this week: Simon Hodge of Simon Hodge Financial Planning, Ian Hudson of Hudson Green & Associates, and Chris Wicks of N-Trust Limited.

Debts

Mark has around £3,500 outstanding on a credit card and £1,500 he owes for utility bills from his previous home, and all three advisers warn that he should clear these debts as soon as possible. "Mark's priority should be to repay as much of the expensive credit as possible," says Hudson, and that needs to be more than the minimum monthly repayment. "Particularly in the current climate, Mark should give serious consideration to using his savings to clear the debt, because his debt is costing more than his savings are earning over the short term."

Savings

"To make his money go as far as possible, Mark needs to start by keeping track of where he spends it," Wicks says. "Always shop around for the best deal on any insurance or utility bills, including mobile phone tariffs."

Hodge says Mark has done well with his savings, but could do more. "With an ISA and an employer share-save scheme worth £6,500, Mark has an element of savings," he says, "but he has to balance that out with how much he owes on his credit card, overdraft, and what he owes the utility company and his parents. He should pay off his credit card and overdraft if he can afford to, but as the money he owes his parents and the utility company is interest free, he could increase the monthly payments rather than use his savings."

Mark expects to have an initial bill of over £1,000 for his rent and deposit in London. The advisers suggest that Mark delay his move by a few months to give him time to maximise his debt repayments and build up his savings. Because of the recent sharp fall in the Bank of England base rate, Mark should keep an eye on the interest rates he receives on his ISA.

Pension

Mark hopes to retire at 70 with a pension pot worth £500,000, which he hopes will last him the 15 years he expects to live after finishing work. But he has no retirement savings and doesn't understand the options available to him.

"Mark should check whether his employer offers a pension scheme," advises Hodge. "If there is no scheme, he should start providing for his retirement as soon as possible, but it has to be affordable."

"Mark's £500,000 for retirement is the equivalent of a gross income of just over £17,000," says Wicks, which will cost him around £460,000 in today's money, if he plans to buy an annuity which will pay out a monthly income until he dies. "To fund this, Mark will need to make contributions of around 20 per cent of his pay, the equivalent of £400 a month gross. He is entitled to the basic rate tax relief on his pension contributions, so his actual contributions would be around £320 a month."

But Wicks also warns that Mark shouldn't put off starting a pension. If he delays his pension contributions by 10 years, Mark will have to find £620 a month to provide for the same income in retirement.

Property

"Mark's best approach to getting on the housing ladder is to save as much cash as possible to increase his options when property begins to look like a really attractive proposition," says Hudson. "Abbey, Britannia Building Society and other high-street banks offer a home saver account which allows you to open an account with favourable rates, purely designed to accept lump sums and regular monthly amounts for those aiming to get on the property ladder."

For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS; or email cash@independent.co.uk