Wealth Check: 'I want to get my finances in order – and buy a car'
Saturday 06 October 2007
Australian-born James Hennesey moved to the town of Hope in Flintshire, North Wales, 18 months ago, with his wife, Monica York, and their daughter Karen.
Monica works part-time as a teacher at the local secondary school, as well as working as an artist and children's book illustrator.
James was only able to find casual work during his first 11 months in Hope, but for the past six months has been in a permanent position as a PR manager.
James and Monica's combined income is £40,000, and now that Tim has full-time work, he is keen to start focusing on getting the family finances in order.
At present, the couple pay £750 a month to rent a three-bedroom home on a 300-year-old farm. They've lived here for 15 months.
Even though James' only debt is £2,000 owed on a credit card – which is interest-free until June 2008 – James is concerned about his family's long-term financial future.
He has no pension plan or life insurance, and has so far refused to convert any of his savings in Australian dollars into sterling because of what he describes as "the unfavourable exchange rates"; he currently has A$15,000 (about £6,800) squirreled away, but no other savings or investments.
Tim wants to secure his family's finances so that they can continue to have enough disposable income for their leisure time and to buy a good second-hand car.
"I'd like to be in a position where we don't have to struggle and can enjoy a good quality of life – where we can go to sporting events and restaurants and so on."
James, a keen cricketer, would also like to keep providing free coaching for the local girls' cricket team, which he took the lead in setting up.
We asked three financial advisers for their suggestion: Chris Wicks of the Alexander Beard Group Plc, Ian Hudson of Hudson Green & Associates, and Anna Sofat of AJS Wealth Management.
Case notes: James Hennesey, 40, PR manager, Flintshire
Income: £40,000 annually (joint with wife)
Property: Pays £750 per month in rent
Savings: A$15,000 with ING Direct Australia (about £6,800)
Debts: £2,000 debt on a credit card
All our advisers agree that it may be time for James to think about changing his dollars into sterling now that he's settled over here permanently.
"When James first arrived, the exchange rate equated to approximately A$2.50 against £1, whereas the rate is now A$2.20," says Hudson. "This means that, rather than his dollars being worth £6,000, they are now worth approximately £6,800." Sofat adds that the cash could then be used as an emergency fund. "It could also provide the deposit for the car James wants to buy," she says.
Wicks suggests building up "more accessible savings" by investing up to £7,000 into an ISA.
"If you leave the country, this can be cashed in, free of tax, and reinvested in Australia," he says.
Hudson also recommends that James use an ISA as a way of building a reserve of savings in addition to his dollars – or perhaps in a combination of accounts, to allow for different plans.
"A mini cash ISA should allow you to save additional funds to supplement the purchase and running costs of your car," he says. " You could then use a stocks and shares ISA to fund a house purchase, assuming it is some years away."
Sofat advises James to take full of advantage of any pension benefit that he accrued in Australia.
"As an Australian, he will be used to paying into a compulsory superannuation scheme," she says. "This is likely to be a money purchase agreement, so he should ensure that this is invested wisely and reviewed regularly."
She also urges him to check whether he has access to a pension scheme with his employer.
If not, she recommends that he look into setting up a personal pension, and says that a stakeholder-friendly pension would be a competitive option.
Wicks adds that, in the UK, the most effective method of providing for retirement is to make pensions contributions for which you get tax relief.
"If you return to Australia, you can transfer the fund built up to a local arrangement," he says.
Hudson warns that, as James currently has no pension provision, it may prove significantly challenging for him to build up a big enough pot to survive his autumn years in comfort.
"If he wants to maintain his standard of income and living into retirement, James would now need to invest £500 gross per month into a pension for the next 25 years," he says. "The earlier the couple start saving, the better. If they wait another year before making this decision, they will find that every year of delay, at their age, reduces their potential income by 5 per cent."
Monica's pension provision is no less important, adds Sofat.
"Being a teacher, Monica should be a member of the teachers' pension scheme. She may, however, want to review her existing provision and see if she can buy added years. There are new restrictions, but I would recommend making enquiries."
Our advisers are concerned about James' lack of income protection in case of long-term illness.
"He should check to see if he has any sickness benefit from work and then fill any gap in provision," advises Sofat.
"Income protection for £19,000 benefit annually would cost about £33 per month," she says, adding that a protection policy "needn't break the bank". "I estimate a third of their take-home pay goes to pay the rent," she says. "Assuming another £1,000 per month for other fixed costs, he has 28 per cent of his monthly pay for discretionary spend. On this basis, the policy mentioned above should be affordable."
Hudson also recommends life insurance for both James and Monica:
"For around £20 a month, James could have a policy that will provide an income of approximately £17,500 to his family in the event of his death. The policy would only last for 20 years. However, it would provide a valuable safety net."
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 . Names have been changed.
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