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 email@example.com.
To find an independent financial adviser in your area, visit www.unbiased.co.uk
- 2 Mystery man who gave mum heart-warming note on train 'wanted to put a smile on her face'
- 5 Amal Clooney gives excellent answer to fashion question at European Court of Human Rights
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...
Day In a Page
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
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village