Wealth Check: 'I chose love over cash, but how can I now save?'
A charity worker with a restricted income but low overheads should build up a nest egg rather than rush to pay off her student loan
Sunday 17 February 2013
Rosa Ellis, 26, from Islington, north London, took a salary cut to work for a charity, and is keen to ensure what spare cash she has is working as hard as possible.
"I chose love over money three years ago to move from the private sector, working in public relations, to the international development organisation Health Poverty Action," she says. "There is so much unnecessary poverty in the world, and working for an organisation that is tackling the global injustices that keep people poor makes me excited to go to work – but it also means I need to be more careful with my own finances."
She earns £25,000 as a communications officer for the charity, and while this meets her outgoings it makes it tricky to set aside any savings for a rainy day. However, she has £3,000 in a Halifax cash individual savings account (ISA), currently paying 1.75 per cent, which was built up during her previous employment.
"I hope that, maybe, one day I'll have enough for a deposit on a flat," she says. "Or should I focus on repaying my student loan before I try to save?"
Rosa has £12,000 in student loans to pay off. She pays £74 a month towards this, and makes sure to steer clear of any further debt.
She benefits from being part of a non-profit housing association and has very cheap rent by London standards: £400 a month, split with her boyfriend, for a one-bed flat.
In the medium term she would like to study for a master's degree in international development or human rights. "But I'm not sure I'd be able to do that and save for a deposit, so should I give up on one of these dreams?" she asks.
Turning to long-term planning, Rosa hasn't yet started paying into a pension. "I've only been working here for five months and I haven't set it up yet," she says. "They offer a defined contribution pension scheme, where I pay up to 5 per cent of my gross salary and my employer matches this." She has no protection policies in place.
In an ideal world Rosa should wipe out debt while squirreling away spare cash alongside saving long-term into a pension. However, our panel of independent financial advisers (IFAs) realise this is too big a task given her small income.
They say her first priority should be budgeting to set aside a bigger pot of cash savings to be put towards future goals, and joining her company pension scheme would be a wise move, given that her employer also contributes.
Draw up a budget
Rosa should make a list of what she spends her money on, the advisers say. This should be simple and show where money can be saved by, for example, switching energy suppliers or cutting down on nights out.
Anna Sofat at IFA Addidi Wealth says: "I estimate that Rosa gets around £1,550 a month after tax and her student loan. Assuming her fixed overheads amount to around £550 a month including rent, utilities and travel, she has good scope to save between £300 and £500 a month." While building up substantial savings could be a struggle on Rosa's salary, over time budgeting should become second nature and she will reap the rewards.
Build cash savings
Rosa has some "rainy-day" cash in the Halifax ISA. However, she could benefit from a higher rate.
Claire Walsh at IFA Pavilion Financial Services says: "While Rosa benefits from such low rent, she should seek to continue to build her savings in an accessible cash account, and whether this is the foundations of a deposit or towards paying for a master's can be decided at a later stage."
Tony Larkins at IFA Beacon Wealth Management says: "A cash ISA should be maintained for these savings, but a regular review of which provider has the best rates is to be encouraged." Rosa can save up to £5,640 into a cash ISA in the current tax year and all interest earned is tax free. Using a comparison site such as moneyfacts.co.uk or moneysupermarket.com will help find the best rates.
Ms Sofat adds that Rosa could consider saving around £100 a month into a stocks and shares ISA for potentially greater returns over a medium timeframe of five or more years – although this involves greater risk to her capital.
Dealing with student debt
As Rosa started higher education between 1998 and 2011 she will be paying interest of 1.5 per cent a year. Repayments are set at 9 per cent of salary over £15,795. With such a low interest rate, there is no great urgency for Rosa to pay off this loan. She can concentrate on other financial priorities and gradually wipe out this debt.
Pensions and the long term
Rosa is around the age when she should start saving into a pension, and the advisers stress that she should join her company scheme.
"She should contribute the maximum 5 per cent of salary to receive her employer's maximum match-funding," Ms Walsh says.
"Pension savings receive income tax relief, so for every £80 Rosa loses out of her pay, the tax man contributes £20 and then Rosa's employer matches the total contribution.
"So on her salary, with a 5 per cent contribution, she will lose £83 from her take home pay, but she will gain £208 into her pension fund, helping to start her savings for retirement."
Buying a first property
Buying a property won't be a realistic objective unless Rosa is able to save up a deposit.
A solution could be to buy outside the capital, or look to buy with a friend, or take advantage of a shared-equity scheme to give her a leg-up on to the property ladder.
She should aim to save at least 10 per cent of the property value. As a first-time buyer she could get a 95 per cent mortgage, but the rates will be uncompetitive. This might take some time, so she will need to be patient.
Mark Dampier: 'So what if a recovery fund is out of luck? The clue is in the title'
Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help
Questions of Cash: We bought the special ceramic poppies. Then the saga began
Five Questions On: GB Energy's new tariff
Halifax credit card charges: bank is forcing interest rate rises on its customers
- 1 Engineer pictured fixing plane's engine with 'duct tape' by concerned EasyJet passenger
- 2 Two-year-old says goodbye to bin man best friend
- 3 Saudi Arabia mosque bombing: Two volunteer security guards hailed as heroes for stopping Isis suicide bomber reaching worshippers
- 4 There is something wrong but very right about this Bible illustration
- 5 Remove smartphones from the hands of under-18s and maybe they will grow up to be less dumb
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
A nation of inequality: How the UK is failing to feed its most vulnerable people
Australian man punched in the face for defending Muslim women from abuse on train
David Starkey 'tells Amal Clooney to shut up and stop over-promoting human rights'
iJobs Money & Business
£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...
£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...
£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...
Day In a Page
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool