Wealth Check: 'Can I see the world and still buy a home?'
Each week we give 'Independent on Sunday' readers a financial makeover
Sunday 18 July 2004
Saving up to see the world while also putting money by towards a deposit on a house - at 24, Adam Burton seems to have a financial mountain to climb.
"I'm looking for a balance," he says. "I know it's important to save for a house in the future, but I do want to go travelling before the age of 30."
Over the past two years, he has managed to put the maximum £3,000 a year in a mini cash individual savings account (ISA) with Nationwide building society. However, he is now in the process of transferring this money to Abbey and its postal mini cash ISA, which offers 5.1 per cent interest. He will probably put this year's maximum allowance there too.
"I've been saving for some years now, as well as having money from an inheritance, and I want to get the best rates I can," he explains.
Adam says he is conservative with a small "c" when it comes to his money. He tries to steer clear of an overdraft on his HSBC current account and keeps a tight rein on his credit card (also with his bank).
"I use the card for big-ticket items, to take advantage of buying on credit in case there's a problem with the purchase later. Even then, I try to pay the debt off by the end of the month."
One debt he does still have to clear, however, is £5,000 in student loans. "The interest rate seems low enough not to worry about," he says. "To be honest, I tend to ignore it - an amount simply goes out of my pay cheque each month."
Since joining the Tetley tea company, Adam has invested in a money purchase pension scheme. He contributes 4 per cent of his salary, while Tetley puts in 8 per cent.
He currently lives in west London, paying £400 a month in rent. "Long term, I'm not sure if my future lies here in this city," he says. "My reasoning is that if I save for the next four or five years, I'll be able to afford a decent place outside London."
Adam would consider investing in shares if the right opportunity came along, either directly or via a fund. He says he has no critical illness cover or income protection.
Adam Burton, 24, lives in Ealing, west London
Job: trainee with the Tetley tea company.
Income: between £25,000 and £30,000.
Savings: £6,000 in mini cash individual savings accounts.
Goal: to travel the world but still save towards the purchase of a home.
The cure: Now make your savings fly
Adam needs simply to put away as much as he possibly can for his two goals - and use every available tax advantage.
"Don't try to separate the two savings targets," says Paul Willans of independent financial adviser (IFA) Blick Rothenberg. "Build up a single deposit."
Adam's responsible attitude to his credit card is praised, but what would happen if he were unable to clear the debt one month? Ben Gibbs of IFA Glazers advises him to consider switching from HSBC, which has a 15.9 annual percentage rate (APR), to one of the many 0 per cent introductory offers.
The financial experts agree that Adam is on the right track with mini cash ISAs, particularly in his decision to switch from Nationwide's 4.65 per cent to a more attractive rate at Abbey.
Since he is likely to use up his mini cash ISA allowance for this tax year, he should consider putting extra money in high-earning building society savings accounts, says Patrick Connolly of IFA John Scott & Partners.
Chelsea building society offers 5.25 per cent gross for a minimum investment of £500, but requires 30 days' notice to avoid loss of interest on withdrawals.
While his long-term aim may be to save for a home of his own, Adam shouldn't bother with any asset classes other than cash until he has finished travelling, says Mr Connolly.
Given that Adam has a fairly cautious approach to investing, Mr Willans suggests that he consider NS&I index-linked certificates, which provide a tax-free return equivalent to the rate of inflation (currently 2.8 per cent) plus 1.25 per cent (ie 4.05 per cent) for three years. If he can keep his money locked away for five years, he will get inflation plus 1.35 per cent on his savings.
Adam is paying an interest rate of 3.1 per cent on his student loans, says Mr Connolly.
As long as he can earn interest at a higher rate than this on his taxable savings, he will have little incentive to pay the loans off early.
With his employer making a contribution of 8 per cent towards his pension pot, Adam is on to a good thing, our panel of IFAs agree. At the moment, he could be receiving as much as £3,600 a year at a cost to himself of just £936 - an excellent start, says Mr Willans.
He could do more, however, suggests Mr Gibbs. "Adam may want to invest more now - particularly as he is unlikely to have spare money to keep up his pension contributions when he is away travelling."
As a member of an occupational scheme, he can contribute up to 15 per cent of his salary.
Since Adam is only 24, with no large debts and no dependants, he has no need for life insurance, says Mr Gibbs. Even so, he should still check to see if his employer offers income protection after he has been in his job for a set period. If not, he should consider taking out some form of protection himself at a later stage.
If you would like a financial makeover, write to Melanie Bien at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email email@example.com
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Buyers beware of new-build home headaches
Simon Read: There may be trouble ahead for cohabiting couples who don’t make a will
Money Insider: Would £150 make you switch banks?
Gold-plated pensions – the key to retirement freedom?
Bargain Hunter: Find the deals that have real value beneath the Black Friday hype
- 1 Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by police in Ohio park
- 2 To help fuel their propaganda machine against the poor, our government has now decided to redefine the word 'welfare'
- 3 Woman opens professional cuddling shop – gets 10,000 customers in first week
- 4 Naked free runner captured in breathtaking photographs above London's streets
- 5 Manchester United named Premier League's loudest fans despite late push by Chelsea according to 'Smart Meter' app
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
France 'blocks' Russian sailors from boarding a warship
Green Party Caroline Lucas interview: 'We could be on the edge of something very big'
iJobs Money & Business
Negotiable: Argyll Scott International: Hi All, I'm currently recruiting for t...
£50000 - £60000 per annum + benefits: Argyll Scott International: A Business A...
£30000 - £35000 per annum + benefits: Ashdown Group: PR Marketing & Events Exe...
$80000 - $110000 per annum, Benefits: Bonus and Employee Investment Scheme: Se...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens