Wealth Check: 'I want to be a millionaire by the time I'm 30'

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."

Case notes

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
Savings/pensions: None

Offering advice this week are Mel Kenny of Radcliffe & Newlands, Robin Keyte of Towers of Taunton and Darius McDermott of Chelsea Financial Services...

Income

"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."

Savings

"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."

Millionaire

"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."

Retirement

"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."

Insurance

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 wealthcheck@independent.co.uk.

To find an independent financial adviser in your area, visit www.unbiased.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Guru Careers: .NET Developer / Web Developer

    £45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence