Chris Woodhall, 26, from Cannock in Staffordshire, lives with his parents, but is keen to buy his own property, and is saving £600 a month for his first deposit. "I'm currently working at Midland Expressway as a toll assistant," he says. "I'm hoping to move into management and be able to buy a property within the next 18 months. But being single and planning to buy a property independently, I'll have to raise a substantial deposit for the type of property I want."
But Chris is still at the modest end of his earning potential, and could struggle with the current mortgage market. He has yet to start a pension fund and has borrowed money to increase his skills.
Case notes
Salary: Chris earns £18,000 a year, plus any bonuses as a toll assistant.
Monthly outgoings: He pays £350 in tax and national insurance contributions, £200 in living expenses and pays off his debts at £100 a month.
Savings: Chris saves £600 a month for a deposit on his first property.
Debts: He borrowed £3,000 interest-free for further training to boost his earning potential.
Mortgage: £0.
Pension: £0.
Three independent financial advisers offer Chris their suggestions this week: Martin Bamford of Informed Choice, Alex Pegley of Calculis and Jason Witcombe of Evolve Financial Planning.
Debts
Chris borrowed £3,000 to take part in two IT courses that he hopes will significantly improve his earning capability.
"The average salary for employment based on these qualifications is £37,000," he says. "At a personal cost of £3,000 it represents good value." And the financial advisers agree. "Investing in his professional development is a great use of his financial resources," says Martin Bamford. "In a tougher economic environment, employers will favour those people who are better qualified and prepared to improve their skills and knowledge."
"It's refreshing to see someone paying to up-skill," adds Alex Pegley, "but Chris should not expect to walk straight into a job in this new field. During the recession, it is unlikely that many companies will be recruiting and he is fortunate to have a stable source of income until he can chose the role he wants."
Chris's career development loan is interest free over three years, so the advisers are not particularly concerned about this. They say he should continue paying this loan off at £100 a month.
Mortgage savings
Despite saving a large proportion of his salary every month, the advisers are concerned about Chris's home ownership plans. Chris wants to buy a home within 18 months, but it will be three and a half years before he can build up a sizeable deposit of £25,000.
"Unless house prices keep falling heavily, which they could do, it's unrealistic for Chris to buy a house within 18 months," warns Jason Witcombe. "Why can't Chris rent for a while? He could wait to see if the management position materialises, get a couple of years on a decent salary under his belt and look at a timescale of five years or more for house purchase instead."
"If his career objectives aren't forthcoming, the bigger problem Chris will face is having too small an income to support a large enough mortgage," adds Pegley. "Having said that, in three years' time he will have a £25,000 deposit and the economy, jobs market and mortgage markets will be very different from today's."
Pension
Chris wants to retire at 60, but is sceptical about pension saving due to the bad experiences of friends and family. He is hoping to invest in property instead. But the advisers warn that a pension is likely to be the best long-term retirement savings choice for a number of reasons.
"Chris needs to rethink his pension strategy," warns Witcombe. "A pension is simply a tax-efficient wrapping to your long-term investment.
"If you choose a range of investments that are appropriate for your timescale and attitude to risk, you should have a positive experience of pensions."
Chris should remember that his main asset will be the property he lives in. "It's best not to have all your eggs in one basket," Witcombe adds. "Why would anyone want to save for their retirement though additional property if their main asset will be their home, anyway. It is illogical to gamble your whole future financial wellbeing on only one type of investment."
"While I understand some of his reservations over pensions, there are a number of attractive features," adds Pegley. "There is tax relief on contributions, tax-free growth, and a 25 per cent tax-free lump sum on retirement.
"His employers should offer some sort of staff pension scheme and if they will contribute to a scheme on his behalf, Chris should definitely join. Not contributing would effectively mean foregoing some of his salary package."
"But not contributing to a retirement plan in your twenties isn't something to worry about," soothes Bamford. "There is still plenty of time between now and retirement to build up a sizeable fund. Retiring at 60 is quite ambitious for a 26-year old, particularly with continuing improving levels of life expectancy."
A more realistic retirement age is probably 65, he adds, although Chris's state pension will not be payable until he is 68.
For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS; or email wealthcheck@independent.co.uk
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