Wealth Check: 'I want to be a millionaire by the time I'm 30'
Saturday 01 May 2010
Andrew Marshall , 24, hopes to be a millionaire by the time he reaches 30. The business development manager works at an office design company and hopes to be earning a six-figure salary by the end of the year. He has been with the firm since leaving the University of Leeds in 2007 and, although a large percentage of his salary is paid in bonuses, he foresees his income increasing significantly in the coming years.
In 2008 Andrew bought a flat in Paris with a €250,000 mortgage. He plans to sell the flat this year and use the equity he releases to invest in a savings scheme. "My short-term goal is to focus on significantly reducing my outgoings to start a regular savings plan with my investments providing a small income which I can use to reinvest to build up a lump sum," says Andrew, who currently shares a flat in West Hampstead. "My medium-term goal is to save enough to have a deposit to buy a flat in London. Meanwhile long-term I hope to have saved enough to be able to retire comfortably by the age of 55."
Annual income: £70k-£100k (depending on bonuses)
Tax and national insurance: £1,000 a month
Rent and bills: £1,000 a month
Mortgage: £1,000 a month
Living expenses: £1,000 a month
Holidays: £2,000 a year
Offering advice this week are Mel Kenny of Radcliffe & Newlands, Robin Keyte of Towers of Taunton and Darius McDermott of Chelsea Financial Services...
"Financial planning is made a easier when one can depend on a steady income," says McDermott. "Unfortunately while Andrew appears to be taking home a healthy salary cheque it is variable and cannot be taken as a fixed income each month. He must build up his cash savings so he can smooth out any loss of earnings in the long run as well as providing for any unforeseen emergencies – I recommend three times his monthly salary."
"As a higher-rate taxpayer, Andrew should make full use of his ISA allowances of up to £5,100 in cash and £5,100 in equities or up to £10,200 in equities," suggests Kenny. "If Andrew wishes to invest in a stocks and shares ISA, he should take a five-year view."
McDermott recommends core UK funds with moderate risk profiles and strong track records such as M&G Recovery and Invesco Perpetual Income. "Andrew could could also look to expose a small allocation of 5-10 per cent of his portfolio to emerging markets and commodities, but it must be borne in mind that these are higher-risk investments. I recommend monthly investing to even out volatility."
Keyte favours investing in shares through investment funds. "A favourite of mine is Alliance Trust, which offers a fund platform where clients rather than IFAs can earn their own trail commission, and an investment dealing account is available offering access to UK quoted investments including investment trusts and exchange traded funds."
"Andrew's objective of becoming a millionaire by the time he reaches 30 is ambitious," says Keyte. "Assuming he sold his Paris flat, he might realise around £86,240. It may be some of that gets caught for capital gains tax (Andrew should take advice on this) but even if he invested that in shares, he would still need to make annual savings of £93,000 up to age 30, assuming 7 per cent growth.
"It's striking that presently Andrew is shelling out £24,000 a year on property in rent and mortgage interest without getting any benefit. If he sold the Paris flat and moved out of his rented flat, he might have a lump sum of around £85,000 for a deposit and £24,000 a year to put towards a repayment mortgage and the costs associated with setting up a home."
There is another option for the Paris flat, points out McDermott. "He could either realise his capital gain now by disposing of the flat or he could rent it out; both solutions will relieve him of the monthly outgoing, assuming the rent will cover the mortgage. But in selling the house he will incur capital gains tax. In deciding whether he should sell he need to calculate whether the rent will cover the cost of the mortgage. If so, as capital is paid off, the property will eventually yield him some income."
"Andrew aims to have a comfortable income when he retires but to do that considerable contributions must be made in these, his early working years, as the earlier you start the bigger the pot. Currently to receive his income goal of £50,000 per annum from age 55, Andrew would need to save £2,000 a month," says McDermott. "This should underline the extent of the sacrifice he must make now to enjoy a comfortable retirement."
His first port of call should be his employer, advises Mel Kenny. "Andrew could ask about the possibility of salary or bonus sacrifice arrangements through his employer. By sacrificing salary or bonus for an employer pension contribution instead, national insurance savings are made, with the employer potentially willing to pass on their saving into Andrew's pension. If this was the case, this would give Andrew total relief of 53.8 per cent on the sacrificed salary or bonus."
Robin Keyte calculates that Andrew's annual contribution to his pension scheme needs to start now at £15,400, assuming that contributions rise each year with earnings at a rate of 5 per cent. "However if Andrew has a good year with bonuses his earnings may exceed £100,000, in which case he should be aware of the new tax rules," points out Keyte. "High earners will have their income tax personal allowance reduced by £1 for every £2 their taxable income exceeds £100,000, giving an effective tax rate of 50 per cent on earnings between £100,000 and £112,950. If this happens Andrew can ask his employer to pay part or all of his bonus as an employer single premium into a stakeholder pension plan. It will get his retirement funding started and avoid the removal of his personal allowance."
Andrew should consider lump sum critical illness cover, says Kenny. "At his age, the cover is relatively cheap and would go some way to addressing his immediate financial needs should he fall critically ill. He should also consider income protection to protect his monthly income in the event of long-term illness or incapacity that prevents him from working."
Keyet agrees. "Should Andrew become long-term sick his income will substantially reduce. To maintain his lifestyle after such an eventuality he should take out income protection insurance. He could get cover at £32.94 a month."
For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email firstname.lastname@example.org.
To find an independent financial adviser in your area, visit www.unbiased.co.uk
- 1 Migrant crisis: Greek soldier saved 20 people singlehandedly off Rhodes beach
- 2 Frank Lampard's face drops when Holly Willoughby introduces him as a 'Man City legend'
- 3 UK weather: Britain braced for snow as arctic air mass moves in
- 4 Aaron and Melissa Klein: Oregon anti-gay bakers ordered to pay $135,000 after refusing to make cake for same-sex wedding
- 5 General Election 2015: Stephen Hawking says he will vote Labour
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Aaron and Melissa Klein: Oregon anti-gay bakers ordered to pay $135,000 after refusing to make cake for same-sex wedding
Andrew Lloyd Webber: Phantom of the Opera writer mocked after issuing a warning about Ed Miliband and Nicola Sturgeon
General election 2015: Labour will toughen hate crimes legislation surrounding Islamophobia
HSBC review into moving headquarters from UK 'underway'
iJobs Money & Business
£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...
£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...
£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...
£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...
Day In a Page
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.
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 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.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
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.
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
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 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
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace