Wealth Check: 'I don't have enough spending money'

Stephanie Witt, 26, from Southend-on-Sea, Essex, is a furniture buyer for Harrod's. Despite having a respectable salary and recent pay rise, saving for her wedding means she has little money left at the end of each month.

She is already on the property ladder and has no debt other than her mortgage and student loan, so Stephanie recognises that she is in a good position compared to many other people of her age, but she struggles with her spending money.

"Inflation is a concern for myself and many other people at present – food and petrol are far more expensive than a year ago. My fiancé and I have adjusted our spending habits slightly but still find that we have little disposable income left after paying for the essentials," Stephanie says.

Case notes

Stephanie Witt, 26, Southend-on-Sea
Income: £24,000.
Monthly spending: £350 on her mortgage, £400 on living expenses, her tax and NICs bill is £450 and £100 goes on insurance.
Savings: Stephanie saves £250 every month into a fixed-rate ISA
Pension: No pension yet, but wants to retire at 55 on £24,000 a year.
Property: Owns a two-bed flat
Debts: Mortgage and student loan.

Three financial advisers talk Stephanie through her financial situation this week: Anna Sofat of Addidi Wealth Manage-ment; Chris Wicks of N-Trust Limited; and Mike Pendergast of Zen Financial Services.

Making ends meet

Stephanie is struggling to make her money stretch to suit her lifestyle. But Anna Sofat suggests that she can do a number of things to cut down.

First, she suggests Stephanie should take control of work-related costs because spending on little things can build up quickly. For example, she could take a packed lunch to work and have a fixed time each week for treats such as a Friday morning latte. She should also review her travelling costs and see if her employer provides an interest-free or low-interest season ticket loan. Alternatively, she could look into coach travel, because although it might mean early starts, it could be cost saving.

Sofat recommends that Stephanie creates a budget for social spending and has a planned calendar to make it easier not only to fund activities, but as a reminder of events to look forward to. While these cost-saving methods are important, Sofat insists that Stephanie should not feel guilty about treating herself. "Save a few pounds each week for personal treats – clothes are one item where prices have not really increased. It's important to feel good today as well as save for tomorrow."

Wicks suggests that Stephanie should shop around to see whether she could change utility, household and motor insurance providers and also look into switching to a cheaper mortgage rate.

Wicks adds: "It may be worth investigating an offset mortgage, which effectively combines a deposit and current account with your mortgage. You do not pay any interest on the element covered by the deposit and current account. This not only reduces how much interest you pay but it can also result in your mortgage being paid off earlier."

Pension

Ideally, Stephanie wishes to retire at the age of 55 with a gross income of £2,000 per month. Wicks says that she should start saving for retirement sooner rather than later if she wants to retire on this income, as considering she is reluctant to take a risk, that is looking unlikely to achieve. "Stephanie's options are to reduce the targeted level of income, adopt a higher level of risk or put her retirement back to a later age," he says.

Sofat suggests that Stephanie should plan for a retirement age of 60. "She should start saving into her pension after the wedding. Look into a company pension scheme, and if there is not one she could look at a stakeholder pension. She should look to save about 10 per cent of her earnings into a pension and increase this by 0.5 per cent per annum."

Mortgage & protection

Stephanie has critical illness cover with her mortgage provider, but Pendergast says she should also check that she has life cover with them. Most critical illness policies include this. "Also ensure that if either you or your partner died or suffered a critical illness, the other could survive financially," he adds. "Check that the provider you have your cover with offers the best deal, as the difference between the cheapest and most expensive providers can be 50 per cent of the premium."

Savings & investment

Stephanie is "risk averse", preferring stable investments such as gilts or bonds to volatile investments such as equities investing in emerging markets. Pendergast says it is advisable to take a more medium-risk approach to investment, as gilts and cash deposits will grow at a lower rate over the long term compared to equities. He adds: "We'd always recommend that you carry out a risk-profiling exercise with an independent financial adviser, as this will mean that funds and investments can be chosen that match your risk profile and also ensure you have the best possible chance of achieving your financial goals."

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