Wealth Check: 'How can I support our baby and still pay for college?'
Saturday 23 April 2005
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.
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.
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.
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 firstname.lastname@example.org.
- 1 Howard Jacobson: Let’s see the 'criticism' of Israel for what it really is
- 3 Gingers face extinction due to climate change, scientists warn
Sustained immigration has not harmed Britons' employment, say government advisers
British jihadist calls for 'flag of Islam' over Downing Street and Buckingham Palace
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£300 - £380 per day: Orgtel: Financial Planning Manager, Banking , London, £30...
£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fina...
Day In a Page
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
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams