Cara Martin, 28, is a qualified social worker and works full time in adult mental health for the Belfast Health and Social Care Trust. She lives at home with her parents in the family home in the south of the city. "My financial goals include increasing my personal savings and working towards buying my own home within a year," she says.
Besides getting a foot on the property ladder and increasing her savings, Cara would also like some investment advice. "I am sceptical of the risks of making a bad investment and would like to have solid advice to help me make the correct choice when investing my money."
Income: £22,000 per year
Monthly outgoings: £400 rent, £134 for a car, £15 for private health insurance, £15 for mobile phone.
Debt: £20,000 student loan
Advice this week is given by Christopher Wicks of N-Trust, Anna Sofat of Addidi Wealth and Dennis Hall of Yellowtail Financial Planning.
All three experts agree that Cara should work out a budget and limit her monthly expenditure. "Start with the basics by keeping track of your expenditure. This is tedious, but it will help you to know where your money is going and make sure that you always shop around for any services that you buy such as utilities, insurance and mobile phones. There are various online comparison websites available which allow you to quickly see whether you can make any savings," advises Christopher Wicks.
He also recommends that it would be worthwhile for Cara to make savings into a cash ISA account. "These will be available to you in the event of an emergency and, in due course, can be put towards a deposit for a property." In doing so, she will be able to prepare for the future and start to make her money work for her.
"Looking at Cara's monthly income and expenditure what stands out most is that she is currently spending almost everything she earns. Curtailing the £1,500-£2,000 she spends on holidays each year would go some way to breaching the gap, but that alone is not enough," says Dennis Hall. By cutting down on her monthly expenditures Cara will be able to begin to take steps toward saving for her first home.
"Cara's first priority should be to create a monthly budget that will factor in the repayment of debts, paying off the most expensive debts first. Sitting alongside the debt repayment should be a savings strategy with the objective of building an emergency fund, as well as saving for a deposit," adds Hall.
Buying a home
Cara's short-term objective is to buy her own home in the next 12 months. The experts recommend that she first do some research into the property market and decide what type of house she would like and where she would realistically like to live.
Anna Sofat says: "She needs to assess what sort of property she would want and how much it might cost her. She should factor in a deposit of minimum 10 per cent on the purchase price plus a further 1-2 per cent to cover buying costs (assuming there is some stamp duty). Currently she can buy a home for up to £180,000 without incurring stamp duty. Unless Cara has already saved a significant sum, I think it might prove a challenge to become a house owner in the next 12 months."
As Cara is earning above £15,000 she is repaying a fixed amount (around 9 per cent of her salary) via her payroll. Current interest on the student loan is 1.5 per cent so the experts believe that it is a relatively cost-effective borrowing and suggest that she does not rush to repay the whole loan. Rather she should repay the minimum required and build up her cash savings for her house purchase.
"If you have any debts apart from student loans, aim to pay these off first, especially credit cards as the interest rates on them can be punitive," explains Christopher Wicks.
Savings and budgets
Cara should create a monthly budget that will factor in the repayment of debts, paying off the most expensive debts first. The advisers believe that beside the debt repayment should be a savings strategy with the objective of building an emergency fund, as well as saving for a deposit.
"The ideal way to do this would be to save regularly into a cash ISA. People under the age of 50 can save up to £300 per month in a cash ISA in the current tax year, making a total of £3,600 that can be sheltered from the taxman. If Cara already has savings in a deposit account she may consider making a lump sum contribution into a cash ISA this year. For non-ISA regular savings there are some very attractive rates at the moment from Barclays Bank and Abbey. Barclays will currently pay 5.84 per cent gross interest on monthly savings of at least £20 and Abbey will pay 5 per cent for regular savings of at least £100," explains Dennis Hall.
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