Wealth Check: 'How can I support our baby and still pay for college?'

Joe Medland teaches children with autism and learning difficulties at a primary school in New Cross, south-east London.

Joe Medland teaches children with autism and learning difficulties at a primary school in New Cross, south-east London. He supplements his income by coaching cricket and running after-school clubs. Joe's partner recently gave birth to their first child and she receives the standard government maternity-leave allowance of £100 a week.

The couple set up a savings account about six months ago. Joe now pays between £500 and £750 into this account each month. They are currently living with her parents but would ideally like to buy their own property in a year.

Joe contributes £100 each month towards his partner's Egg loan. She also has a student loan but they do not envisage paying it off in the near future. Joe is doing a part-time social and cultural studies degree at Goldsmiths College - his father paid this year's fees but next year may not be so obliging. His partner is also at university and will have to pay fees in September.

We put Joe's case to Ian Barton at Smith & Williamson Pension Consultancy, Jonathan Fry at Jonathan Fry & Co, and Darius McDermott at Chelsea Financial Services.

Case details

Joe Medland, 22, teaching assistant

Salary: £16,800 salary a year, plus an additional £100 a month from part-time jobs (and a weekly £100 maternity-leave payment).

Savings: £3,000 in Alliance & Leicester internet savings account.

Rent: £200 a month.

Pension: 6 per cent of salary contributed to local authority pension scheme.

Debt: £2,500 loan with Egg and student loan.

Monthly outgoings: £100 on loan; £75 travel costs; £250 baby necessities; £200 rent; £500-£750 savings.

Savings and investment

Ian Barton says that to make Joe's savings more tax efficient, he could transfer money into a cash ISA. For example, Alliance & Leicester's internet-based ISA currently pays 5.4 per cent. Putting savings into his partner's name is also a good idea if she is likely to remain a non-taxpayer.

The couple need to focus on short-term priorities: paying off the Egg loan, ensuring they can afford all they need for the new baby, and meeting the cost of university fees. They need to do all this without getting themselves into increased levels of personal debt.

Jonathan Fry recommends investigating the cost of early repayment of the Egg loan, as the interest charged is likely to be much higher than the rate they earn on their savings.

Darius McDermott also suggests a cash ISA. Joe can invest up to £3,000 a year in one of these tax-free accounts: the best rate available at present is from Halifax bank, but the minimum deposit is £3,000. The next best is from National Counties Building Society, which is offering 5.5 per cent a year on a minimum deposit of £1.

With the birth of their first child, they will eventually receive a voucher for a Child Trust Fund (CTF), the government's new savings scheme for kids. This will be for £250 to be invested in the child's name, with an additional £250 available when the child reaches age seven.

The voucher can be invested in a cash deposit account, in shares, or in a mixture of the two. In addition, friends and family can contribute to the account, up to a maximum of £1,200 a year. The Children's Mutual offers a range of equity funds for this purpose and McDermott favours Invesco Perpetual Income fund.

Pensions

Barton says the Teachers Pension Scheme will provide Joe with valuable final-salary-linked pension benefits. Fry advises Joe's partner to consider her own pension arrangements in the next few years. If she does not become a member of an employer's occupational pension scheme, she can arrange her own stakeholder plan and contribute up to £3,600 a year.

Stakeholder pensions are cheap, says McDermott, charging as little as 1 per cent a year in fees. Contributions can be as small as £20 a month. In addition, the plans are flexible, allowing savers to stop and start contributions to their plan, as and when required.

Property

Barton warns that the couple's plans to buy a property in a year may be over-ambitious. If Joe were able to borrow 3.5 times his total income, then a mortgage of £73,000 could be raised. If savings of £750 per month were achieved for the next 12 months, he would have additional savings of £9,000, plus interest.

The maximum purchase price that could be considered, using all of his savings, would be £82,500. Barton would not recommend that they considered a mortgage with an enhanced borrowing multiple of salary to try to borrow more. While Joe is the sole earner in this family, and with a new baby, this type of mortgage would not be for them.

McDermott says saving for a deposit is essential. Joe is putting aside a good amount each month. Although they do not have a property of their own just yet, they do have a child - some form of income protection, especially as his partner is not receiving full wage at present, is therefore important. Setting up a life insurance policy on a joint life, first death basis would be sensible and inexpensive, he adds.

For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Recruitment Genius: Online Customer Service Administrator

    £16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

    Recruitment Genius: Digital Marketing Executive

    £18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

    Day In a Page

    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

    Everyone is talking about The Trews

    Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
    'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

    'Queer saint' who bankrolled artworld giants

    British culture owes a huge debt to Peter Watson, says Michael Prodger
    Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

    Pushkin Prizes brings countries together

    Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
    14 best kids' hoodies

    14 best kids' hoodies

    Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
    Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

    The acceptable face of the Emirates

    Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk