Wealth Check: 'I want to save for my holiday Down Under'

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The Independent Online

Angela Bertram, 23, works in the fashion industry in London. Next year, however, she is planning to head to Australia where she hopes to both work and travel for 12 months. At the moment, she has just £700 in savings, and is nursing some £1,200 in credit card debt. However, she wants to have at least £2,000 saved up before she heads off.

Case notes

Salary: £21,000 a year.
Monthly outgoings: £390 a month in tax and National Insurance, £495 on living expenses, £210 on savings and £50 on student loan payments.
Savings: £700 in a cash ISA, but wants to increase this to £2,000 over the next few months.
Debts: £1,200 on a Virgin Money credit card, at 0 per cent until June 2009. She also has several thousands pounds of student loans.
Pension: None.

We asked three financial advisers to give Angela some guidance: Jason Witcombe from Evolve Financial Planning, Ajmer Somal from Positive Solutions and Matthew Woodbridge from Chelsea Financial Services.

Debt

All three financial advisers agree that Angela should aim to pay off as much of her credit card debt as possible before she leaves. Although she is currently paying no interest, this deal expires in June, after which it may be harder to find another 0 per cent deal – especially if she is overseas.

Somal says that if she is unable to clear the balance, she should try to find another 0 per cent deal before she leaves. Tesco Personal Finance is currently offering 0 per cent on balance transfers for 14 months, which could be enough to keep the remaining balance interest free until she returns.

As well as her credit card debt, Angela is also paying £50 a month towards a student loan. However, Somal points out that if Angela expects to earn less than £15,000 in the year she is away, she will be allowed to suspend these loan payments.

Savings

If Angela is going to meet her goal of having £2,000 of savings before she leaves, she is going to need to be very frugal over the coming months. "Don't give in to the shops' hard-sell this Christmas," advises Witcombe. "Instead, give people imaginative Christmas presents that cost you very little."

Woodbridge says that if Angela could save an additional £640 a month, she would have enough money in three months to pay off her entire credit card debt, while still having around £2,000 left in savings. Somal says that Angela should put all her savings into a cash ISA, and advises that she checks she is earning the best possible rate. If she is earning less than 5.5 per cent, she should consider switching to the Principality Building Society's e-ISA.

Witcombe adds that Angela could get a boost to her savings through a tax rebate, if she stops work before the end of the current tax year in April. This could be as much as £300.

Future plans

Angela has no pension savings, but says that she would like to retire in her late fifties with a pension of around £30,000 a year. Witcombe points out that Angela would need to build up a pension fund of around £1m to achieve this goal, which is unrealistic unless she moves into a much higher paid job when she gets back from her travels.

Somal says that she should join her employer's pension scheme as soon as she arrives back, and should start saving as much as possible into a pension. However, Angela will also need to build up some cash savings for emergencies, and if she plans to buy a property, she will also need to start saving for a deposit.

All the advisers agree that Angela may need to adjust her retirement goals. She would have to work well beyond her late fifties if she is to get anywhere close to her goal of a £30,000 a year pension.

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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