Wealth Check: I want to buy a house of my own – but I also love going on holiday
PA wants to reconcile her desire to own a property with her love of foreign travel and shopping. Our three financial experts help her out
Saturday 04 January 2014
Lydia McDaid is keen to start saving more so she can continue to afford regular holidays, but she also wants to start salting more money away so she can buy her own house in the next few years.
The 27-year-old from Hornsey, north London, is a personal assistant to a managing director and earns about £25,000. She has been in her current role for two-and-a-half years and is now looking for a new PA job on slightly higher pay.
She has two savings accounts, both with NatWest. At present, she has £900 in her main account and £100 in an Advantage Gold account. "My savings can fluctuate from £1 up to £3,000, depending on what crops up along the way," she says. "Paying for Christmas and car insurance renewal – along with this month's rent – will mean my balance drops."
But Lydia is set on building her savings again. "I want to squirrel money away into a fund I can use for 'luxuries' such as clothes shopping and holidays. If I'm disciplined, this will hopefully mean I can continue to go abroad three times a year, as I did last year when I went to Las Vegas, Ibiza and Greece.
"In recent years, I've been able to afford this by carefully planning my saving and spending budget. In addition, I try to take advantage of discounts and deals on my grocery shopping, and make use of cashback sites such as Topcashback when buying online."
Lydia has no overdraft or card debts, but she has just started a finance plan for her car, and is now set to pay £180 a month until 2017.
In September last year, she moved into a three-bedroom apartment with two friends. "My share of the rent is £377 a month," she says. "However, my boyfriend Blain lives with me, so we halve this. I pay around £60 for bills.
"Eventually, I would like to move into a place of my own – but know I will need a lot of time to save for this. That's why, alongside my shorter-term savings, I want to start saving in a 'house fund.'"
At present, Lydia has no investments and does not pay into a pension. She also has no protection policies in place.
Our panel of independent financial advisers commend Lydia for living within a budget and for not having an overdraft or credit card debt, especially as she is quite focused on short-term goals.
However, they urge her to focus more on her longer-term financial priorities, such as building cash savings both for short-term needs in a rainy day fun and for the longer term in a house deposit fund. They also advise her to join a company pension as soon as she can.
Check the car finance plan
Patrick Connolly from Chase de Vere says Lydia must understand exactly what interest she is paying on her car finance plan, and what penalties she might face if she wanted to pay off her debt early.
"If there are penalties, she might be best continuing to make payments until the plan ends," he says. "But in future, to avoid debt, she could consider building up savings which would leave her having to borrow less on a finance plan."
Balance short-term costs and longer-term planning
While Lydia's main objectives involve savings to meet short-term costs, John Ditchfield from Barchester Green urges her not to neglect her longer-term financial planning.
"I'm concerned she may be living a little beyond her means in prioritising car purchase and frequent travel ahead of regular savings, retirement planning and property purchase," he says. Mr Connolly agrees Lydia must make sure she gets the balance right between living for today and planning for tomorrow. "On the positive side, Lydia seems very organised and has a good understanding of her income and outgoings," he says.
Build savings for the future
Mr Connolly suggests Lydia should start putting money away for the future by splitting cash savings into three pots.
"The first could be used for short-term expenses such as holidays and the second to build an emergency fund," he says. "In the third, she could build savings towards longer-term goals such as a house purchase."
He says Lydia should look to save longer-term cash savings in a cash Isa, as all interest is tax-free.
Mike Lavin from Helm Godfrey adds that Lydia's potential increase in salary represents an excellent opportunity for her to increase her monthly savings. "But she should establish a savings arrangement soon after her new income kicks in to avoid getting used to having more disposable income," he says.
Save hard for a house deposit
As Lydia's rent and household bills are low, she should start saving for a house deposit.
Mr Lavin urges Lydia to think seriously about the sort of property she'd like. "She will then have a much better idea about the deposit she will need," he says. A mortgage adviser could give her an idea of how much she may be able to borrow – and what her repayments might be.
Mr Ditchfield adds that the Government's Help to Buy scheme might be an option worth considering. "This will mean she only needs a 5 per cent deposit," he says.
Start paying into a pension
While Lydia has other priorities, Mr Lavin says it is important she starts contributing towards a pension as soon as possible.
"The older she is when she starts contributing, the less time her pension money will have to benefit from investment growth," he says. "The cost of delaying is more significant than people think due to the compounding of investment returns."
Mr Connolly says the start point should be an employer's scheme – especially as many will pay in on behalf of employees. "Lydia should aim to join her new workplace scheme as soon as she starts working there," he says.
Look at investing a little further down the line
While Lydia's main priority should be building cash savings, Mr Connolly says she should also think about other longer-term investments, including regular savings into a stocks-and-shares Isa.
"This type of account works well alongside pensions, as pensions give upfront income tax relief but aren't flexible," he says. "Equity Isas can also be tax-efficient but are far more flexible – meaning Lydia could access her money when she wants."
Mr Ditchfield adds that saving as little as £50 a month into an equity Isa could be beneficial. "If Lydia did this over 10 years, this could produce savings of around £8,500," he says.
Check protection policies offered at work
Mr Lavin says Lydia should check what protection benefits are offered by her potential new employer.
"If income protection is not provided, she should consider taking out a policy, as this would provide a monthly income if she were unable to work due to ill health," he says. "Once she's on the property ladder, she will also need life cover to ensure the mortgage is covered should anything happen to her."
Mr Connolly adds that while a will is not urgent at this stage as Lydia has no dependants and relatively little to leave, she should think about drawing one up in future.
Do you want a financial makeover?
Write to Julian Knight at:
The Independent on Sunday, 2 Derry Street, London W8 5HF
Money roundup video: It's getting harder to sort out a mortgage
Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help
Five Questions On: GB Energy's new tariff
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
How to start your own internet business
- 1 California man brutally beat 82-year-old Sikh grandfather he mistook for 'one of those people'
- 3 School kitchen manager 'fired from Colorado school for giving hungry students free lunches'
- 5 Charles Kennedy 'had better judgement drunk than many sober politicians' says Ian Hislop
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Church of England 'one generation away from extinction' after dramatic loss of followers
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...
£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...
Day In a Page
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
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.
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.
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.
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 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