Wealth Check: 'Can I save for a flat and a wedding in two years?'

A 26-year-old administrator is keen to leave his parents' home and to pop the question to his long-term girlfriend, so he will need a big savings pot



The Patient


James Cole from Chingford, in north-east London, is settling into a new job, and looking to take the next step with his long-term girlfriend. The 26-year-old started work as a property administrator in a residential block management firm earlier this year, and is on a salary of around £21,000 a year.

While James lives with his parents and pays just £200 a month in rent, he is keen to move out and get a place of his own. "Within the next two years, I would like to have saved up enough to move into a rented property with my girlfriend," he says.

He also has plans to tie the knot."I would really love to get married and then go on a long honeymoon for one or two months," he says.

James is in the fortunate position of having no debts. "I do have an overdraft on my current account with Barclays, as well as a Barclaycard Credit Builder card with a limit of £450, but owe nothing on either of these at the moment," he says.

However, James has no money in either savings or investments. "I'm keen to build up a savings pot both for the short and longer term," he says. "I'd like to set up some kind of high-interest savings account, as once I've got this in place, I can focus on putting money away to pay for a rental property, and to pay for a wedding."

James does have a pension with Scottish Widows, but it is currently frozen. "I took this out with one of my previous employers, and there is around £6,000 in the account," he says. "I'd like to know what to do with this money. I'd also like to start paying into a pension again."

James has no protection policies in place.

The Cure

Our panel of independent financial advisers agree that James is in a good position to save, as he doesn't have any debts and is only being charged a modest rent by his parents. But, they warn, he will have to save hard if he is to afford not only moving into a rented home in the next two years, but also the cost of a wedding.

Calculate rental costs

"James will need to save up a minimum of four weeks' rent – and possibly as much as six weeks' rent – as a deposit," says Anna Sofat, from Adidi.

He will also need to save up for the first month's rent and any agent fees.

"Agent fees range from £25-£150 or more, depending on the property, agent and location," says Danny Cox from Hargreaves Lansdown. "Average rents in Chingford range from £572 a month for a studio flat up to £889 for a two-bed flat.

"To secure a one-bed flat, James has to save £1,686 to cover the deposit and first month's rent, plus any agent's fees. There will also be more costs if he moves into an unfurnished property."

Get into the savings habit

After tax and national insurance, James will take home around £1,360 a month from his earnings of £21,000, according to Mr Cox.

"After paying his rent to his parents, he has the chance to save considerable amounts of the remainder," he says. "Once James has moved into a rental property, he will need to allow for utility bills, council tax – and potentially service charges – as well as his monthly rent."

He will also need to factor in normal outgoings such as food, phone and his social life. While James will be able to share these costs with his girlfriend, Adrian Lowcock, from Bestinvest, says he should get into good budgeting habits now while he has the opportunity. "He should look to draw up a budget of his incomings and outgoings," he says.

"Once he has calculated how much he spends each month, and on what, he can work out how much he can realistically afford to save each month."

Set targets

As the average cost of a wedding is around £11,000 – including a honeymoon of £1,500 – James is going to need to save hard, says Mr Cox.

"This is especially important as he plans to honeymoon for up to two months," he says. "He also needs to allow for unpaid leave, when he won't receive an income, but will still have to pay rent and bills."

Mr Cox urges James to plan ahead and target how much he needs to meet his two main aims. "If his target is £20,000 over two years, say, he needs to save £833 a month."

With this target in place, the key is to stick to it. "One of the easiest ways to do this is by having his savings leave his account the same day he is paid," says Mr Cox. "If savings are left until the end of the month, there may be no salary left."

The right account

James should consider an easy access individual savings account (ISA) as the interest is tax-free, according to Mr Cox. "He can save up to £5,340 in a cash ISA this tax year, and the allowance is then due to increase by inflation from April 2012," he says.

Ms Sofat suggests that an alternative to an ISA might be a regular saver account. "James may want to consider a fixed-rate regular saver, as some banks offer attractive rates if you lock your money away for a period," she says. "Northern Rock is paying 4 per cent on its fixed rate regular saver."

Mr Lowcock adds that investments are not really an option over such a short time scale. "The risks are too great, as if the markets fell, the investments would not recover their value over two years," he says.

Restart pension scheme

Ms Sofat urges James to check if his employer offers a pension scheme. "If there is one, he should join," she says. "If not, he risks missing out on any employer contributions."

If there is no scheme, Mr Cox says it is still worth restarting pension saving. "This may just be a modest amount to reflect his other goals," he says.

"Most pension schemes will allow a contribution of around £50 a month, and this will keep his pension savings ticking over while he saves for more short-term goals. He can increase this amount in the future."

According to Mr Cox, the fund of £6,000 James has already accumulated may seem small, but it is actually a decent size, given his age."The existing Scottish Widows pension is likely to be a good scheme, so he could restart contributions to this," he says. "The alternative is to start a new scheme and transfer the Scottish Widows value over to consolidate."

Protection

As James does not have any family responsibilities, he does not need life cover, says Ms Sofat, but he should give thought to income protection. "At his age, he should be able to get a policy for £14.75 a month," she says.

Do you need a financial makeover?

Write to Julian Knight at The Independent on Sunday, 2 Derry Street, London W8 5HF. j.knight@independent.co.uk

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