Wealth Check: I want to clear my debts and start saving'
Saturday 19 April 2008
Rory Toner, 24, a software developer from Belfast, is determined to buy a home within four years, but has debts to clear before he can start saving for a deposit. He has five years' worth of student loans and a £1,400 overdraft to clear before he is 27, when his bank will start to charge for it. He also wants to retire on £30,000.
But Rory is unsure of the best way to manage his financial priorities. "The main thing that concerns me is how to maintain a balance between savings and building a deposit for a house and paying off my debts," he says. "I just don't know the best way to approach it."
This week three financial advisers help Rory with his money: Raj Shah of Simply Independent, Arthur Dornan of Carterbar and Mel Kenny of Radcliffe and Newlands.
CASE NOTES: Rory Toner, 24, software developer, Belfast
Income: £21,000 a year.
Monthly outgoings: Rory spends around £1,750 a month, or £21,000 a year, matching his income. His living expenses cost around £1,100 a month, including rent and bills; £50 a month goes on holidays; a further £180 on unforeseen costs and treats – socialising, meals out, entertainment and DVDs; and around £420 of Rory's monthly salary goes on income tax and National Insurance.
Savings and investments: Rory has no investments, and is not contributing to any savings, but wants to start saving for a deposit to buy a house.
Debt: Rory's overdraft is between £1,400 and £2,700. There is also around £18,500 outstanding on his student loan.
Debts and homebuying
Dornan and Shah agree that Rory needs to deny himself some indulgences in order to make inroads into his debt. "He recently managed to pay off £1,700 over a four-month period, so if his living expenses include a few non-essentials, he can cut back," says Dornan. Around £75 a month should clear Rory's overdraft by the time he is 27.
"If Rory is looking at buying a house worth about £100,000 then he is going to need a deposit of at least £5,000 assuming the current mortgage situation does not worsen," adds Dornan, who says Rory needs to be saving around £150 to £200 per month in order to accumulate his deposit.
An ISA would be the best way for Rory to save. Kenny suggests that he saves up to £300 per month with Scarborough Building Society's My Savings ISA, a regular savings ISA with interest of 6.25 per cent variable per annum tax free. In three to four years' time, this could be used to pay off the overdraft and go towards a property deposit. For full flexibility, Egg's cash mini ISA has a 6.05 per cent variable per annum tax free.
Rory could invest in an equity-based ISA which is likely to offer greater returns than a cash-based one. There are pitfalls, however.
"Rory has a cautious attitude to risk and so his options are limited. He may wish to look at the BlackRock UK Absolute Alpha Fund," Kenny says.
He adds that as Rory may need to be prepared not to withdraw funds from an equity-based ISA for at least three to four years, he should not invest in one too heavily as that would mean risking not meeting some of his shorter-term objectives.
The advisers are concerned that Rory's pension plans are too ambitious, but Shah says that putting away £250 a month should be sufficient to generate Rory's desired sum in retirement.
Shah warns, "Should Rory choose to put a smaller amount into his pension, it would be vital that this figure is increased and reviewed annually to ensure that he doesn't get a nasty surprise come retirement."
If Rory's employer doesn't contribute to a pension scheme which he could join, Mel Kenny advises considering making contributions to a personal pension when he becomes a higher-rate tax-payer.
"Since 6 April 2008, contributions made by a basic-rate tax-payer only enjoy 20 per cent tax relief. If Rory sets aside a sum via his ISA and moves this to a pension when he is a high-rate tax-payer, he would enjoy 40 per cent tax relief on the same sum," Kenny says.
To find an independent financial adviser in your area, visit www.unbiased.co.uk
For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail firstname.lastname@example.org
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Authorities failing in hunt for 'most wanted' tax dodgers who owe HMRC £844m
Buyers beware of new-build home headaches
Child Maintenance Service to replace Child Support Agency - but is it better?
Bargain Hunter: Kit yourself out in sports gear - at a healthy discount of up to 75%
The 10 Best money-saving sites
- 1 Miley Cyrus' homeless MTV VMAs date, Jesse Helt, is wanted by the police
- 2 Arizona shooting: Gun instructor accidentally killed by nine-year-old girl with Uzi
- 3 Paul Scholes: Manchester City were so good against Liverpool I felt like turning the television off
- 4 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 5 Homer Simpson has taken the ALS ice bucket challenge because of course he has
Exclusive: We share blame for creating 'jihad generation', says Muslim strategist
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Arizona shooting: Gun instructor accidentally killed by nine-year-old girl with Uzi
- < Previous
- Next >
iJobs Money & Business
£40000 - £48000 per annum + benefits+bonus+package: Harrington Starr: C# Devel...
£45000 - £60000 per annum + benefits+bonus+package: Harrington Starr: C# Swift...
Negotiable: Harrington Starr: A fast growing Financial Services organisation b...
£50000 - £60000 per annum + excellent benefits: Harrington Starr: An award-win...
Day In a Page
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
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony