Wealth Check: Dresses, jets and not living on a wing and a prayer
She owns a boutique, he's in the RAF and they want to build wealth without flying too close to the sun. By Harriet Meyer
Sunday 08 June 2008
As a young family keen to secure their financial future, Karen Bremner, 36, and Darren Lownds, 34, want to choose the right home for their spare cash.
"We're looking to invest for the long term," says Karen. "And we don't feel we're making the most of our money."
The couple, from Newbigging, Scotland, have a four-year-old son, Cameron. Karen, a contestant on the second series of The Apprentice, owns a ladies' clothing boutique while Darren is a navigator for the Royal Air Force. They have a combined salary of around £100,000. "It's a little tricky to say how much we earn exactly as I haven't run the shop for a full year," she says. "But I estimate it to be around this sum."
Most of their finances are managed through the One Account, formerly branded Virgin One, which pools all their money into one pot, including savings, current accounts and the home loan at a rate of 6.45 per cent. This enables them to offset their salaries against their mortgage debt to reduce the sum incurring interest.
They have a 20-year £60,000 loan on their four-bed house, bought for £245,000 two and a half years ago. It is now worth around £350,000.
The couple also have stock market investments, with £1,000 in a Lloyds TSB personal equity plan (PEP) and £18,000 in a shares individual savings account at Canada Life. They pay £150 a month into this ISA.
However, choosing investments can cause problems as the couple have conflicting attitudes to risk.
"I am a typical canny Scot and nervous of putting money into things," says Karen. "Darren is the spender in the relationship."
For retirement needs, she paid into a previous employer's final salary pension scheme for 12 years, which is set to pay out an annual income of around £9,000. He pays 5 per cent of salary into the Armed Forces Pension Scheme, and has done so for nine years.
The family have no protection policies in place.
With substantial equity in their home, a small mortgage and good incomes giving potential for future savings, the family's finances are in decent shape, agree our panel of independent financial advisers (IFAs).
To make the most of their money, they should balance paying off the mortgage with tax-efficient investment vehicles. They should also put protection in place in case anything untoward happens.
While Karen admits to being a cautious investor, a diversified portfolio of funds is far more likely to produce positive returns in the long run than a deposit account, stresses Alex Pegley of IFA firm Calculis.
They should begin by checking the performance of the funds they already hold. "Investments are like any other product," adds Mr Pegley. "Over time, better alternatives may become available."
He recommends BlackRock's UK Absolute Alpha fund, which aims to deliver positive returns regardless of whether the stock market is heading down – handy in the current climate. As well as shares, the fund invests in derivatives such as futures. The idea is that Absolute Alpha hedges its bets so that even if share prices fall, the returns from the derivatives are such that overall growth is achieved.
The couple could also use some of the money held in the PEP and ISA to pay off a chunk of their mortgage, says Mr Pegley.
Their use of an offset mortgage is a tax-efficient and effective way to pay off a loan early, Mr Pegley continues. The large sums of cash flowing through the account will reduce the sum on which they pay interest, and shorten the term of the mortgage.
Additionally, offsetting allows them to avoid paying tax on any savings interest. This arrangement is particularly suitable for higher-rate taxpayers such as Karen and Darren, who lose 40 per cent of their interest to tax when they hold money in traditional savings accounts.
"But it does require discipline," adds Mr Pegley, "and too frequently people end up trimming only a little off their mortgage because they dip into the funds."
To pay off their debt as quickly as possible, they should set a target for when they want to be mortgage- free, such as five years from now, says Dennis Hall of IFA Yellowtail Financial Planning. Then they can plan how to achieve this by making hefty overpayments when possible.
Darren should boost his pension benefits by making additional contributions to his final salary scheme, says Mr Hall, while Karen should start paying into a private plan.
"They key attraction of pensions is the tax relief, and as a higher-rate tax-payer, Karen would be wise to take advantage of this," says Mr Pegley. While she has good benefits from her previous scheme, starting another plan will maximise growth over the long term.
Karen can start a pension with a modest monthly contribution topped up with lump sums as her business grows, comment Kevin Anderson of IFA Budge and Company.
With a young son to look after, the couple must consider what cover they need to guard against any unforeseen events such as death or disability.
Karen will receive no benefits from the Armed Forces Pension Scheme if Darren were to die in service, warns Mr Anderson, because the couple are unmarried. However, Darren can investigate what options are available to him through the RAF.
"For example, there is a Dependants Fund which would pay out a lump sum of £10,000 tax-free to his next of kin if he were to die in service. This comes at a monthly cost of just 45p."
They should also take out life insurance, which is "relatively inexpensive but extremely valuable if needed," adds Mr Anderson.
Karen should also think about buying income protection cover, which is particularly important for the self-employed and will keep the money coming in if she is unable to work.
Diving in at the deep end is no excuse for shirking the style stakes
Consumers given power to choose a green deal
'Scrap the trap': calls for change grow as banks are told to play fair with loyal savers
Bargain Hunter: Eurostar offers child fares for £1 each way to Paris, Brussels and Lille
10 tips for taking out a personal loan
Five Questions On: Putting last year's price on insurance quotes
- 1 Why I'm on the brink of burning my Israeli passport
- 2 Japanese plant experts produce 10,000 lettuce heads a day in LED-lit indoor farm
- 3 War is war: Why I stand with Israel
- 4 L'Oreal cuts ties with Belgium supporter Axelle Despiegelaere after hunting trip photographs
- 5 The true Gaza back-story that the Israelis aren’t telling this week
Sustained immigration has not harmed Britons' employment, say government advisers
War is war: Why I stand with Israel
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Australia facing international condemnation after turning around Sri Lankans at sea
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
iJobs Money & Business
£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...
£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...
£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...
£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...
Day In a Page
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
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square