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.
Bargain Hunter: Affordable art - suddenly being a collector is just a walk in the park
Phoenix Life: Chance of a refund for overcharged policyholders has risen
Money Insider: Peer-to-peer lenders come into their own as marketplace lending evolves
Has your Premium Bond won the £1million jackpot?
There are 'dark corners' of the investment and pensions industry, says Pension Minister
- 1 End of the licence fee: BBC to back radical overhaul of how it is funded
- 2 This restaurant has misunderstood the concept of 'cheese and biscuits'
- 3 Raif Badawi, the Saudi Arabian blogger sentenced to 1,000 lashes, may now face death penalty
- 4 Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
- 5 PornHub turns masturbation into energy in bid to save the planet
New theory could prove how life began and disprove God
This is what it's like to be dead, according to a guy who died for a bit
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukip would cut billions from Scottish budget to fund English tax cuts
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
Day In a Page
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
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
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