Wealth Check: 'How can I balance working, travelling and saving money?'
Saturday 02 April 2005
Sarah Croker works as a production coordinator for a TV company. Living at home with her parents means she is in a position to save a large proportion of her wage.
Sarah Croker works as a production coordinator for a TV company. Living at home with her parents means she is in a position to save a large proportion of her wage. On average, she has been putting half her monthly earnings into a savings account with ING but wonders whether this is the most efficient way to save.
Ideally, Sarah would like to use the money she is putting aside to move out of home in a year. Before then she is keen to use a small amount of savings to go travelling again.
Another worry for Sarah is her lack of pension, and moving between companies up to three times a year for different jobs means she doesn't envisage being offered an occupational plan in the near future. She would like some advice on what is available to her and how much money she should be putting aside.
We put Sarah's case to Darryll Connor at Towry Law Financial Services, Lisanne Mealing at MDM Associates, and Paul Barnes at BestInvest.
SARAH CROKER, 23, TV PRODUCTION CO-ORDINATOR
Property: Lives with her parents, so pays no rent.
Savings: Half her monthly wages go into an ING savings account.
Monthly outgoings: Doesn't pay for household bills or food. £144 on travel. £40 phone. £35 gym membership. £200 clothes, socialising and general living expenses.
Paul Barnes says the ING account is reasonably attractive and offers a competitive interest rate but it could be improved upon. He suggests monthly savings should be split between a regular savings scheme such as the account on offer at HSBC, which pays 8 per cent, and a mini cash ISA. Sarah should be able to match the 4.89 per cent before-tax rate paid by ING rate in a cash ISA, where no tax is payable.
Lisanne Mealing says Sarah will find her savings grow much more quickly using the tax advantages under a cash ISA. If she acts quickly, before next Tuesday, she could pay £3,000 into an account in the current tax year and £3,000 in the next. Both Mealing and Darryll Connor suggest Alliance & Leicester, which offers an online account paying 5.4 per cent and instant access.
If Sarah goes travelling for a few months and her total income next year is less than £4,895, Connor suggests she registers to receive all her savings interest free of tax by completing form R85. These forms are available from most banks and building societies, as well as the Inland Revenue.
Connor says Sarah is in a strong position, as she has disciplined herself to save each month in order to move out of her parent's home in about a year. He suggests Sarah looks into the associated costs of buying a property - the deposit, solicitors' fees and possibly stamp duty which applies to property purchases above £120,000 in the 2005/6 tax year.
If Sarah is looking at five years before she is intending to purchase property, Mealing suggests investing a full £7,000 into a stocks and shares ISA.
There are several new products available that are billed as alternatives to building society accounts with guarantees that lock in after certain periods.
DWS Ratebuster locks in gains on a six-month rolling basis and has an initial target of 7.75 per cent a year. Although you can access funds at any time, to lock in gains, you can only access the capital within a three-day period at the six-month rollover dates.
Given Sarah's age she may be tempted to put pensions on the back burner, says Barnes. But this is something that needs to be addressed sooner rather than later. Sarah can contribute up to £3,600 a year to a stakeholder pension even without any earnings. So even if her employment is sporadic, then she can still make savings.
From a net income of about £1,200, and taking into account monthly outgoings, Sarah should have a spare £200 to £300 a month for additional saving or investment, says Mealing. Starting a pension would be no bad thing. If she could do this quickly, she should be able to find a stakeholder plan with a 1 per cent annual management charge, though many providers may increase the charge in the new tax year to 1.5 per cent.
With no employer contributions at present, this would give Sarah a good start and the plans would be flexible to changes to her circumstances. Connor says stakeholder pensions suit people who change employers in that they can retain a central pension pot. Employers, if they are willing, can contribute to this.
* For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS, or e-mail email@example.com
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