Lucy Minshall, 24, a public affairs consultant from London, may have left university far behind her, but the debts she racked up there still haunt her. "I've been working for two years, but I'm still trying to get over my student loan and overdraft," she says "I just about survive on my salary but have nothing left to save for a rainy day. I can't even begin to think about getting on the property ladder, and I had hoped to stop working when I have children."
Case notes: Lucy Minshall, 24, London
Income: Lucy earns £20,600 a year.
Monthly spending: her rent is £700 including utility bills and taxes, she spends around £100 on food, and around £200 on socialising.
Pension: Lucy has just started contributing around 3 per cent of her salary into a final salary scheme.
Debts: Lucy owes around £12,000 on her student loan and goes into her overdraft by around £500 each month.
Three independent financial advisers help Lucy this week: Dennis Hall, of Yellowtail Financial Planning, Matthew Woodbridge of Chelsea Financial Services, and Ajmer Somal of Positive Solutions.
The advisers are concerned that Lucy's spending is more than her income every month. "Lucy is earning £20,600 and she is taking home less than £850 a month," says Hall. "But her expenditure is approximately £1,000 per month, so it is little wonder she finds it a struggle to repay her overdraft.
"Lucy needs to count carefully what she earns and what she spends. If she cannot reduce her spending then she needs to think about how to increase her earnings. Is it time for a new job or can she get a pay rise in her current job?" he asks.
Lucy started paying 3 per cent of her gross salary into a final salary scheme, which all three advisers say is a rare privilege, as these schemes are closing to new employees quickly because of the cost to employers. "But if Lucy were retiring today at age 65 and wanted £10,000 income she would need a retirement fund of more than £250,000, and this doesn't take inflation into consideration," warns Hall. "So the earlier she can stop paying other people and start paying herself, the better the likelihood that she will attain the financial independence she wants when she gets older."
Protection & Savings
Lucy should find out if there are any other employee benefits offered by her employer, adds Ajmer Somal. If her company has perks such as death in service benefits, critical illness cover, private medical insurance and long-term sick pay, these are valuable parts of her employment package. "If she does have these benefits, she should find out how long they pay out for and consider putting money into an emergency fund once she has cleared her debts to protect her if something happens," he suggests.
"She should think about saving into a cash ISA where she can save up to £3,600 in this tax year and pay no tax on the interest." says Woodbridge. "Icesave is offering a cash ISA paying 6.10 per cent, while Barclays' cash ISA pays 6.08 per cent – but this includes an introductory offer."
Lucy wants to get on the property ladder, but being unable to do so recently may have proved a blessing in disguise. "The property market is looking like a bubble that is slowly deflating, and it may even burst," says Hall. "Some forecasters are predicting reductions of more than 30 per cent in property values over the next year or two."
The advisers say Lucy should focus on her debts and savings before starting to look at buying a property.
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