Wealth Check: 'I want to get on the property ladder – but I've got debts to clear'
Student Neelam Eman Ali hopes to swap her part-time work for a career in childcare. She needs to save to pay off her overdraft, and get a pension
Saturday 25 May 2013
Neelam Eman Ali from Watford in Hertfordshire wants to clear her debts and get her finances into better shape so she can start thinking about the future, and one day look at taking the first step on to the property ladder.
The 20-year-old is studying for a childcare diploma at West Herts College, which is due to finish next month, and lives with her mother in a rented council house.
While she doesn't pay rent, Neelam helps out with the household costs, including the phone bills, grocery shopping and petrol, thanks to a job as a crew member at a fast food outlet. "I've had the job for two years alongside my studies, but the pay isn't particularly good, and the working environment is quite hard, so I'd be keen to find an alternative place to work," she says.
When Neelam finishes her course, she plans on looking for a job in childcare. "But I'm also widening the net, and will look at other potential roles too, such as working as a receptionist or a PA," she says. "The problem is, I don't have much experience of this kind of work, so may struggle."
As Neelam has been studying and using money from her part-time job to help with the household bills, she has yet to squirrel any money away into savings. She also has debts to contend with. "I've run up £1,500 on my overdraft with Santander," she says. "I didn't even realise I had an overdraft facility until I'd gone a long way into the red. I am slowly paying this back, but it's going to take some time. On the plus side, I don't have any debts on cards or loans to worry about."
As yet, Neelam hasn't given much thought to pension planning; she also has no protection policies in place.
"My main priority is clearing my debts so I can start saving money," she says. "One day, I'd like to buy a flat, and also have enough money to go travelling.
"I'd like to take steps to sort my life and no longer live in a council area," she adds. "I'd also like to help my mum by taking steps to ease the financial pressures at home."
Our panel of independent financial advisers agree that while Neelam has a number of perfectly reasonable financial goals, some are simply unachievable at this stage.
They suggest the best starting point to achieve her objectives is by improving her employment position. They also urge her to begin budgeting carefully, deal with her overdraft, and look to build up her savings for the short-term, and eventually for the longer-term.
Review employment plans
While Neelam needs to improve her employment position, this is easier said than done in the economic climate, when many young people are struggling to find jobs, says Patrick Connolly from Chase de Vere.
"Nonetheless, Neelam needs to have some direction," he says. "She needs to ask herself whether she wants employment in the childcare field – or whether she is indifferent."
Given that Neelam isn't happy with her job at the fast food outlet, she needs to start proactively looking at the job market now, he adds. "If she can secure a new job which she enjoys – and which pays her more money – her overall financial position should improve markedly," he says.
Draw up a budget
At this stage in life, the best thing Neelam can do is get into some good habits with her personal finances, according to Christopher Wicks from Bridgewater Financial Services.
"She should begin by making sure she knows exactly how she spends her money," he says. "She should also keep a record of outgoings, and check the rates on phone tariffs and other household bills are competitive."
Useful comparison sites for comparing rates include uSwitch.com and moneysupermarket.com.
Deal with debts
Neelam's main priority should be to pay off her overdraft, as charges can be hefty, according to Mr Wicks.
Nick Evans, from One Life Wealth Planning, suggests Neelam may want to consider converting the overdraft into a personal loan over a period of say, three or four years.
"On the downside, it may cost her more in total to repay this debt – even allowing for a lower interest rate – as it will take her longer to pay it off," he says. "But the clear advantage is she can reduce her monthly outgoings. Overdrafts are one of the worst forms of debt, as it's so easy to build up debt unless they're used with great discipline."
Start to build up savings
Once Neelam has paid off her debts, her next financial priority should be to build up her cash savings.
"It's very important to have emergency cash savings," says Mr Connolly. "This will help to avoid the need to go into debt if money is required at short notice."
As a starting point, Neelam should start saving into a cash individual savings account (Isa).
"In the current year the limit is £5,760," says Mr Connolly. "All interest is earned tax-free."
If Neelam is able to build her pot of savings, this will also put her in a better position to achieve her longer-term financial goals, such as buying her own home.
"The key now is for Neelam to get into the habit of putting money into savings each month," adds Mr Evans. "Even if she occasionally has to take it out again, the habit will be rewarded. And, once she starts her new career, her earnings will hopefully increase – giving her the perfect opportunity to increase the amount she saves."
Don't ignore planning for the longer term
Right now, Neelam's huge advantage is her age, according to Mr Evans.
"As she's still young, she can be forgiven for not having thought much about savings, investing, pensions or protection," he says.
That said, Mr Connolly adds that she will need to think about putting money into pensions and other investments at some point.
"First and foremost, she needs to focus on paying off her debts and building cash savings," he says. "But once she's been able to secure a job which she thinks she will stay in for some time, she should look into joining any pension arrangements offered by her employer, and particularly if the employer makes contributions."
He also points out that while there's no desperate hurry for Neelam to start pension saving, the sooner she starts saving for retirement, the more time her money will have to grow into a decent pension fund.
Review protection further down the line
As Neelam has no obvious protection needs, she doesn't need to worry about protection products for the time being, says Mr Connolly.
"But when she manages to secure a full-time job she should review any protection benefits offered by her employer," he says.
Mr Wicks agrees that while life cover is not necessary in her current position, she will need to think about this insurance once she starts working and if she has a family.
Don't rely on getting married
While Neelam talks about wanting to get married in a couple of years' time, Mr Connolly warns her not to hold back on her financial planning because of this.
"Her planning should take account of her position today," he says. "It can then be tweaked if her circumstances change in the future."
Will your credit card rewards be scrapped following new EU rules on charges?
What would happen if you put a statistician in a casino with £1m?
Simon Read: 'The fight must go on over equality on expat pensions'
Five Questions On: GB Energy's new tariff
Pension freedoms: How to deal with cold calls from scammers
- 1 Bruce Jenner's 'Interview of the year': Suicidal thoughts, rejection by family members and new wardrobe
- 2 Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
- 3 How to turn off/stop 'seen by' on Facebook: Disable it to make your chats seem less passive aggressive
- 4 'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
- 5 Buckingham Palace guard who attacked passers-by in 'most most violent piece of CCTV footage' police officer had seen walks free
The sickening truth about food banks that the Tories don't want you to know
Katie Hopkins on LBC: Listen to caller taking The Sun columnist to task over migrant comments
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...
Day In a Page
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
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 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
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms