Wealth Check: 'Can I put down roots and still see the world?'
Graduate student Matthew Evans has had enough of renting and wants to buy his own home, but without jeopardising a long Caribbean trip
Friday 29 March 2013
Matthew Evans is keen to take the first step on to the property ladder once he finishes his studies and finds a full-time job. The 25-year-old is a PhD graduate student at Glyndwr university in north-east Wales; he is paid £13,560 a year. While this is similar to a salary, it is covered by a studentship, so is tax-free.
"When I finish in September 2014, I expect to start working as a post-doc researcher," he says. "The typical salary is around £24,000. These tend to be short-term positions lasting between six months and two years, but are needed to build up experience. Ideally, after that, I will be aiming for an academic position, with a starting salary of around £30,000."
Matthew pays £450 a month to rent a private two-bed flat in Wrexham. He has been renting here since starting his PhD in September 2011. "I've been renting for seven years and I really want to buy a home of my own," he says. "Until recently, I've always lived in poor-quality rental properties. I dream of buying a two-bed house, ideally with a large garden."
In the short term, Matthew plans on staying in north-east Wales after finishing his studies. "I'd look to commute to work, depending on the job I get," he says. "But in the longer term, my goal is to leave the UK to work and live in perhaps either Canada or Australia. I'd like to move somewhere where the pay is better, as well as the job security."
In the meantime, Matthew would like to have enough money to buy his own place, while also having enough left over for a long holiday, without wiping out all his savings.
"I've not had a proper break for several years so would love to do a little bit of travelling, taking in the US and the Caribbean for four to six weeks," he says. "It wouldn't be anything extravagant, and I'd look to stay in simple B&B accommodation. I don't know if this is achievable."
Matthew has £7,255 in a cash ISA with NatWest earning 2 per cent, but has no other money in savings or investments. While he also owes £17,000 in student loans, he has no other debts on credit cards or loans.
"I have a £1,000 overdraft facility on my current account, but am not using this at the moment," he says. "I also try and make purchases through Quidco when I can to benefit from cashback, as every little helps."
As Matthew has no pension provision at the moment, he is keen to start putting money away for later life. He has no protection policies.
Our panel of independent financial advisers commend Matthew on the fact he doesn't have any debt other than his student loan, but agree he needs to focus on building his cash savings in ISAs to help him take his first step on to the property ladder. They advise him to start thinking about saving for the longer term.
Rank financial priorities
Matthew should begin by ranking his priorities, according to James Robson from Plutus Wealth Management.
"With a number of different goals and a limited budget to work from, he won't be able to achieve everything at once," he says.
"He should write down his monthly income and expenditure, working out how much he can save on a monthly basis to put towards his personal goals."
Mr Robson recommends Matthew should look to work backwards from his goals. "By working out how much he will need for his holiday and house deposit he can then create a savings plan based on affordability, and the timeframe needed to achieve these numbers," he says.
Avoid taking on debt
Patrick Connolly from adviser AWD Chase de Vere says Matthew should continue to try to avoid taking on debt where he might have to pay high rates of interest.
"While Matthew has built up a significant amount of debt with his student loan, the interest rate is competitive," he says. "He won't have to pay any of this back until he is earning more, so this isn't an immediate concern."
Build up cash savings
Matthew should aim to keep at least three months' worth of outgoings in an emergency fund, according to Mr Robson. "He is taking the right approach by starting to build up cash savings in an ISA, where all interest is tax free," he says.
At 2 per cent, the rate of interest on his NatWest cash ISA is competitive, says Mr Connolly. "But he could increase this rate to 2.25 per cent if he switches to NatWest's eISA."
Mike Pendergast from adviser Zen Financial Services adds Matthew needs to keep a close eye on the rate he's getting. "It pays to shop around every six months just to check whether there's a better deal available elsewhere," he says.
Mr Connolly urges Matthew to try to make full use of his ISA allowance, which is £5,640, rising to £5,760 in the new tax year.
Save hard towards a mortgage
If Matthew wants to get on to the housing ladder, the best approach is to build up his cash savings, according to Mr Pendergast.
"Matthew will need to save hard for a deposit," he says. "The bigger the deposit, the lower the rate he will pay on his mortgage. While it is possible to get mortgages of up to 90 per cent of the value of a property, the interest rate will be far higher than if he saves a 15 per cent deposit, and only needs to borrow 85 per cent."
Don't delay pension saving
Mr Robson urges Matthew not to put off longer-term planning, and suggests he could start saving into a stakeholder pension.
"With a stakeholder, it's possible to contribute from as little as £20 a month, and charges are capped," he says.
Mr Connolly points out that when Matthew starts full-time work, he will have access to an employer pension scheme.
Consider opening a stocks-and-shares ISA
While Matthew should focus on maximising contributions into his cash ISA, Mr Pendergast suggests he could also then consider a stocks-and-shares ISA.
"This will be more volatile but will allow him to save more money tax-free than if he only saves in a cash ISA," he says. "This could help with his goals of buying a house and paying for a long holiday."
As Matthew is 25 years old and single and has no mortgage or dependants, he has no real need to consider protection policies at this time.
"Life cover isn't really required," says Mr Pendergast. "Matthew could consider critical illness cover which pays a lump sum should he be diagnosed with a serious illness. But this may not be an immediate priority."
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