Wealth Check: 'I push the boat out every month'

We give 'Independent on Sunday' readers a financial makeover
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The problem

With a year of his business studies degree remaining, Oliver Wedlake is having trouble financing his undergraduate lifestyle.

He already owes £12,000 in student loans and finds it hard to stay afloat, despite having earned a salary for the past eight months on placement at a London-based PR agency.

"I'm always struggling to juggle day-to-day expenses," he admits.

Even with his salary, Oliver tends to reach the £2,000 overdraft limit on his NatWest student current account before payday each month. He also owes £500 on a Barclaycard.

But he is getting help from his parents. Having invested "several thousand pounds" in a tracker fund on his behalf since he was 14, they have also agreed to foot the monthly £625 rent on a houseboat in Chelsea. Insurance policies - life and health cover from Axa PPP - have also been taken care of.

While Oliver appreciates the help from his parents, he is determined to take a greater role in managing his finances.

"I want to try to be more sensible with my money, and learn that it doesn't grow on trees," he says.

He also has £500 saved in a Bristol & West savings account paying 3.2 per cent.

In 2007, he plans to journey through South America. On his return, he will start thinking about the housing ladder - and about saving into a pension.

Interview: Esther Shaw

The patient

Oliver Wedlake, 21, lives in south-west London.

Job: business student on a year's work placement.

Income: £12,000 a year.

Savings: £500.

Investments: "a few thousand" in a stock market tracker fund.

Debt: £12,000 in student loans.

Goal: to manage his money more sensibly but with an eye on saving for travelling in 2007 and for a deposit on a flat.

The cure

Oliver's short-term goal should be to fund his South American trip, says Justin Modray from independent financial adviser (IFA) Bestinvest. "As a student, he has little surplus income and will be hard-pushed to start saving now.

"But salting away a little cash each month will help pay for his travels."

Oliver shouldn't worry about pensions and long-term savings until he starts full-time work after graduation, he adds.

Anna Sofat at IFA Destini Fiona Price says Oliver's spending - getting through an entire month's salary despite paying no rent - is "unsustainable". He must draw up a budget to cut out unnecessary spending; this could save him £50 to £100 a month, she estimates.

Savings

Travelling for a year will require a lot of cash. "If Oliver can set aside £50 a month between now and 2007, he should be able to build up around £1,000 for his trip," says Mr Modray. "A mini cash individual savings account [ISA] offering tax-free growth on £3,000 a year [the maximum allowance] would be a sensible option." Alliance & Leicester currently pays 5.4 per cent, he adds.

Debt

He may owe £12,000 but this is not an immediate concern for Oliver. "Student loans have low interest rates [2.6 per cent] and are a cost-effective way of borrowing," says Ms Sofat. As long as the NatWest overdraft is interest-free - and so costing him nothing - Oliver should aim to build up his savings instead, she adds.

However, if the annual percentage rate (APR) on his Barclaycard means he is paying more interest than he would receive on any savings, it may be worth clearing the £500 debt first.

Investments

Mr Modray says Oliver should check whether the annual management charge on his tracker is more than 0.5 per cent. "If so, he is paying over the odds and should transfer to a better-value [lower-cost] fund."

Alternatively, he could switch some of the money to a fund that provides exposure to overseas stock markets and so gives more diversity, such as Artemis Global Growth.

"Leaving this money invested, and ideally adding to it, should make a healthy contribution to a deposit on a flat in a few years' time," he adds.

Property

It may be some time off but Oliver should look to save a deposit of at least 10 per cent, says Ms Sofat. She suggests he think about buying a two-bed property and renting out one room to make money.

Retirement

Oliver is right to consider making contributions to a pension scheme once he starts full-time work, says Mr Modray. "The sooner he starts, the more likely he is to enjoy a comfortable retirement."

Protection

Alex Pegley of IFA Calculis says Oliver could drop the "luxury" of private medical cover and use this money [from his parents] elsewhere. As he has no dependants, he could also get rid of his life assurance.

If you would like a financial makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@independent.co.uk

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