Wealth check: Discipline is the key for a costly move overseas
It is Shannon and Frank Williams's dream to live in America by 2012 – and they need £10,000 to make it come true. Harriet Meyer looks at their options
Sunday 20 September 2009
In total, they estimate they will need around £10,000 to meet all these outgoings by 2012, and have a long way to go to reach this target. However, Shannon hopes to get a full scholarship for the course she wishes to study, as well as work as a teaching assistant to help towards setting up their new life. Frank hopes to find work in a gym.
At the moment, they live in Surbiton, Surrey, where he works as a membership consultant to the Fitness Industry Association, while Shannon works part-time as a public relations consultant and writes in her spare time; they have a combined income of £38,500.
So far, they have amassed £1,175 in an individual savings account (ISA) with Barclays, paying 2.55 per cent. They slot spare cash into this account when possible towards their lump- sum target, although they don't contribute a set monthly amount.
Between them, they pay £675 a month for a "very spacious studio" and have rented together for 16 months. Aside from this cost, their major expenses include £230 a month for American student loans in Shannon's name totalling $38,000 at various interest rates from 3 per cent to 5 per cent. They have no other debt, making sure to pay off their Barclays' credit-card balance each month before incurring interest.
Neither Shannon nor Frank pays into a company pension scheme. However, Shannon is about to become eligible for a scheme at 5 per cent of salary each month, to which her employer will also contribute. "But as I only take home £765 a month and plan to emigrate in the future, this doesn't seem worthwhile," she says.
Discipline is the necessary ingredient for this couple to achieve their financial goal. "And they have the potential to save a decent sum if they continue their prudent approach of avoiding any further debt aside from the student loans," says Marc Ruse, from independent financial adviser (IFA) Fiducia Wealth Management.
Saving into a cash ISA is a good place to start, agree our panel of IFAs, as the couple cannot afford to take risks with stock-market investment, given their relatively short timeframe.
Emigration is an expensive process, they add, and anyone embarking on a change-of-country move should ensure that they build a healthy cash buffer in anticipation of any unexpected costs.
Shannon and Frank's goal of setting aside £10,000 by 2012 to fund their move is "very achievable", agree the advisers. Considering the couple's combined salary, they should be able to squirrel away at least £250 a month.
"They might even want to be more ambitious with the amount they want to set aside," says Robin Keyte, from IFA Towers of Taunton. That way, if Shannon fails to get a scholarship or a teaching assistant post, they have accumulated a larger pot to see them through any financial difficulties.
Currently, they can put up to £3,600 a year into a cash Isa, each, and that limit will rise from 6 April 2010 to £5,100. The rate they earn on their savings is decent, with interest rates in the doldrums, but this may change over the coming months, so they should check comparison sites such as Moneyfacts.co.uk to access the best accounts.
"There is the option of investing in the stock market," says Darius McDermott from IFA Chelsea Financial Services. "But this type of investing normally requires at least a five-year window for saving, so investing through a cash ISA is probably their best route."
If their plans change and they remain in the UK, then any sum saved could help the couple achieve other goals, such as getting on the property ladder, stress the advisers.
Shannon is unfortunately saddled with high rates of interest on her student loans compared to her British counterparts. This makes it sensible for her to prioritise repaying these as well as making savings, as interest costs will be mounting up.
Shifting the loan repayments to America from her current account could be done through her bank – but this is likely to incur a hefty fee. Other transfer services, such as PayPal, do this for a small fee – so she should check which is the best and cheapest service for her.
The advisers were divided on whether Shannon should consider joining her company's pension scheme. "As she will benefit from employer contributions to this, it's attractive," says Mr Keyte. "Also, most company schemes deduct contributions from pay before income tax, boosting the amount saved, and she can transfer funds abroad or arrange payment of benefits abroad." However, while standard advice is nearly always to join the company pension scheme, "this may be one of the few circumstances where it may not be such a good idea," adds Mr Ruse.
If Shannon is certain that she will return to her home country, then building up a small pension pot in the UK could be "a waste of time and money".
Depending on her relationship with her employers, she might be able to persuade them that it would be more beneficial for her to have any contribution either paid to her as part of her salary or as an alternative benefit.
If Shannon and Frank choose not to make any pension contributions over the next few years, they will need to make these up when they can afford to do so. The sooner they start, the better, as it is the contributions made in early years that have the most impact on a pension pot because of compound growth.
If Frank wants to insure against ill health or accident rendering them unable to reach their financial goals then an income protection policy would be a cheap solution.
However, state benefits would make up a significant proportion of Shannon's current earnings in the event she were to fall ill, say – and the couple may consider this type of protection unnecessary for them at present.
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