Wealth Check: 'I want to buy a house, pay off £23,500 debt - and retire at 45'
Saturday 15 July 2006
Paul Batchelor, 27, from Orpington in Kent, has recently started work as a currency trader. He is single with no children and is renting a property with a friend on a six-month contract. Now that he's earning a good salary, he hopes to be able to purchase a flat with his brother within the next year - his parents have offered to act as guarantors on the mortgage.
Paul has £10,000 saved to put towards a 5 per cent deposit on the purchase price of a property but he has no other savings or investments. He expects to be earning approximately £70,000 a year in his new job, assuming that he hits his commission targets, and has, therefore, agreed to take on the larger share of the mortgage repayments.
Paul also has a small pension fund valued at £3,000, held in an occupational scheme at a previous employer. He is keen to retire early, but at the very least would like to save enough to generate an income worth £30,000 a year in today's terms by the time he is 65.
Paul, therefore, wants to know how to build up his savings - in the long term, he assumes he needs to invest his money in stocks, shares and property especially, because, in ideal terms, he would stop working by the age of 45.
Paul also has debts to consider. These amount to approximately £23,500, including a student loan of £6,500 and a car loan of £12,000. Should he pay these off before he starts general saving and rejoining a pension scheme?
We asked two independent financial advisors for their suggestions: Justin Modray, of Best Invest, and Andrew Swallow, of Swallow Financial Planning.
Paul and his brother should be able to get a good deal if they shop around carefully, as the mortgage market remains fiercely competitive, says Modray. He suggests a discounted variable-rate mortgage would keep the brothers' initial repayments down. If they choose a deal where there are no penalties to pay for switching lender once the discount has come to an end, they will be able to move to a more attractive offer when the discount ends.
Modray also urges Paul and his brother to put a legal agreement in place to determine what happens if one of them wants to sell or finds that they cannot afford the mortgage repayments in the future.
Swallow also thinks this is important, but he suggests that Paul and his brother need to give the whole purchase a bit more thought. They may be better off renting for a year together before buying a property to make sure that it will work.
Alternatively, since Paul and his brother have debts to pay, moving back in with their parents for a year would be a good option - they'll get used to living together and have more money to get what they owe paid off. Another option, if it is possible, would be to borrow money from their parents, so they get a deposit worth 10 per cent of the purchase price - this will give them access to better mortgage deals.
Finally, Swallow says that if, as expected by some analysts, interest rates rise this year, the housing market could slow - in which case, delaying their purchase might be quite a sound move.
Either way, Paul and his brother need to build other costs into their plans: stamp duty, legal fees and the cost of life assurance, for example.
Both advisers believe Paul needs to concentrate on clearing his debts as soon as possible and that he should forget about adding to his savings until he has done this.
Swallow wonders if it would be possible for Paul to borrow around £7,000 from his parents and combine this with his own money to repay his overdraft and most expensive debts. If so, he could be substantially debt-free within a year or so.
Swallow does not include the student loan in this assessment of Paul's debts, as this borrowing accrues interest only in line with inflation - in other words, in real terms it is interest-free.
Modray says there are other ways for Paul to ease his debt burden - transferring his credit card balance to a 0 per cent introductory offer, for example, would make sense, with www.moneyfacts.co.uk a good place to start looking for deals. Moving bank accounts could also cut Paul's overdraft fees - for example, Nationwide's FlexAccount charges just 7.75 per cent.
Once Paul's debts have been reduced and his repayments come down, he can invest his spare cash into a tax-free cash individual savings account (ISA) in order to rebuild his savings.
Paul has ambitious plans for his retirement. Modray says Paul would need to accumulate a sum of £226,000 by the age of 45 for it to then grow into £600,000 to give him £30,000 a year in today's terms. This means Paul will need to be saving approximately £7,400 a year.
As a first step, he needs to join his employer's occupational pension scheme, if one is available. If not, a low-cost stakeholder pension is a good place to start.
Modray suggests Paul works on the basis of needing £125,000 of assets for every £5,000 of income he wishes to draw. Paul will need plenty of surplus income to facilitate early retirement and should aim to have a wide range of assets, including equities, corporate bonds property and commodities to spread the risk and increase his chances of achieving his goal.
The good news is that time is on his side - he can afford to take more investment risk while he is younger.
Paul Batchelor, 27, currency trader, Kent
Income: £70,000 a year, assuming targets for sales commissions are hit
Monthly spending: £1,480 on general living expenses but Paul also spends around £2,000 a year on holidays and saves around £250 a month.
Savings: £10,000, held in a building society account and intended for use as a deposit on a house.
Debts: In total, around £23,500. £2,500 on credit cards charging 19.9 per cent a year, £2,500 on an overdraft at the same rate, a £12,000 hire-purchase car loan, costing 12.9 per cent a year, and £6,500 of student loans.
Property: Currently renting but planning to buy with his brother.
Pension: £3,000 held with previous employer.
Fuel poverty could kill 100,000 vulnerable people over the next 15 years, charity warns
Bargain Hunter: Affordable art - suddenly being a collector is just a walk in the park
Phoenix Life: Chance of a refund for overcharged policyholders has risen
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
Simon Read: That's right, BT, they'd rather pay for a free service
- 1 Michelle Rodriguez: Fast & Furious actor apologises after telling 'minorities' to stop taking on 'white' roles
- 2 Raif Badawi, the Saudi Arabian blogger sentenced to 1,000 lashes, may now face the death penalty
- 3 PornHub turns masturbation into energy in bid to save the planet
- 4 Robert Mugabe eats a zoo for 'obscene' 91st birthday party
- 5 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
New theory could prove how life began and disprove God
This is what it's like to be dead, according to a guy who died for a bit
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Ukip would cut billions from Scottish budget to fund English tax cuts
Russia's roadmap for annexing eastern Ukraine 'leaked from Vladimir Putin's office'
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
Day In a Page
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 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