Wealth Check: Can I do an MBA and save for a house as well?

A recent graduate has ambitious plans to save up for expensive postgraduate study and buy property in Nigeria – both within four years. Maryrose Fison reports

The patient

Twenty-two-year-old graduate and trainee accountant Obiocha Ikezogwo is keen to get a handle on her finances so she can realise her dream of doing an MBA and purchasing a property overseas. Having grown up in Nigeria, Obiocha would like to reconnect with the place she calls home and get her foot on the property ladder there within four years. She feels that having an MBA will boost her business skills and help her to build a business in Nigeria in the future.

With an annual salary of £24,700, her main outgoing is her accommodation in Wallington, Surrey, where she shares a three-bedroom house with her father, paying £480 a month rent.

The cost of doing an MBA will be quite substantial, as the courses she would like to apply for cost in the region of £42,000 for a full-time two-year course. But Obiocha is in a relatively good position in that her father has generously committed to pay up to half the fees. She is also prepared to apply for sponsorship and grants to help make up the remaining £21,000.

Her dream of buying a property in Nigeria would be initially for a rental income, and she is aiming for a three-bedroom house in Lagos, ideally around the Lekki or Victoria Garden City suburbs.

The cure

With no student loan or credit card debt, a well-paid graduate job and a manageable monthly rent, Obiocha is in a good position to start saving. But if she wants to begin an MBA course within four years and take out a mortgage on an overseas property, she will need to begin putting a sizeable chunk of her monthly earnings away regularly, and consider an additional part-time job if she doesn't extend her timeframe.

Savings

In order to save enough money to do an MBA, Obiocha will need to keep a watchful eye on her outgoings. Dennis Hall, managing director of London-based Yellowtail Financial Planning, says this will be crucial if she is to save enough money for the course within four years. "Budgeting is a skill that everybody should acquire as early as possible," he says. "Having an understanding of her personal financial cash-flow will help Obiocha as she seeks to achieve her goals."

Mr Hall calculates that she will need to save £437.50 per month if she is to save up £21,000 within four years but she could maximise her savings by putting the money into a cash ISA.

"This level of savings fits within the current cash ISA limits and a cash ISA would be the ideal place to start regular savings because the interest will accumulate tax free," he says. Another alternative would be to open up a monthly savings account with her bank, HSBC. "Depending on the type of HSBC account Obiocha has, she may be able to open a monthly savings account with an interest rate of between 4 per cent and 8 per cent for the first 12 months. This is not an ISA, so the interest would be taxable, but the rate is better than most ISAs."

Property

With Obiocha's limited savings and the possibility of not attracting sponsorship, the financial planners feel she may need to rethink her timeframe. Mike Stafford, a certified financial planner and partner at Hertford-based Stafford and Co, suggests Obiocha consider deferring her purchase for a further few years so she can raise sufficient capital. "The combination of an MBA fund and the house purchase fund looks unlikely to be achieved in the four years, so she may have to defer her purchase for a further couple of years," he says.

Before committing to a property purchase, he recommends she consider the type of mortgage she may be able to secure and the level of capital she will need to obtain this.

"Obiocha will need a mortgage to assist in the purchase of her property and the maximum advance she is likely to get is 80 per cent. The type of property she is interested in is likely to cost in the region of £120,000 in today's terms. This means she will need to raise a 20 per cent deposit of about £24,000," he says. "As she is not a resident in Nigeria, she will be advised to open a Non-Resident Nigerian (NRN) account at a mortgage company there and she will need to have serviced that account for at least six months to qualify for a mortgage."

Pension

As Obiocha has a considerable amount of capital to accumulate in order to achieve either of her financial goals, she will need to maximise her savings as much as possible. Mr Stafford recommends she takes this into consideration when choosing whether to begin saving into a pension as well.

"Now is not the time to start investing in a pension plan," he says. "However, the terms of her employment may require her to contribute to a company pension scheme. In due course, when she sees that her two main priorities are being accommodated she might consider pension planning. If she stays in the UK, she will benefit from compulsory employer contributions under the proposed Nests workplace pensions scheme."

However, the financial planners feel Obiocha shouldn't leave pension saving too long. Each pound saved under the age of 30 is worth £3 saved in her fifties because the pension investment has much more time to grow and benefit from the initial tax relief given.

Insurance

While the prospect of contracting a serious illness is unlikely to be at the forefront of the mind of a twenty-something, Obiocha should consider the potential value of taking out critical illness insurance now when she could have access to better rates.

Alok Dhanda, managing director of the Newcastle-based financial planning firm Dhanda Financial, says he has on more than one occasion seen a client in their twenties who has been struck down by a serious illness and needed this kind of financial support.

"Obiocha is in a great situation as she is single, young and healthy, so there aren't too many demands on her finances. This is the perfect time, then, for her to set up a critical illness policy, as it will be a lot cheaper now than when she grows older," he says.

He also suggests Obiocha consider a "whole of life policy", which would protect her and any children or dependants she has in the future, regardless of her country of residence.

"For £17 a month, she could provide added protection, not only for herself, but for any family or dependants she may have in the future. By opening a policy now, Obiocha can already start accumulating wealth to pass on to children while she is still in the UK, and if she ever moved back to Nigeria, the policy would continue."