Craig Tabengwa is a trainee lawyer from south-east London. As well as working part-time as a junior clerk at a barristers' chambers, he is studying for a post-graduate law degree at London South Bank University. He earns £12,750 and hopes to save enough money for a deposit for a house by the time he finishes his degree in 2009.
Being young, Craig has no substantial assets but also carries no debts. He lives with his parents, so doesn't pay rent but he does contribute a monthly housekeeping payment. He would like to be able to retire at 55. He's prepared for a sensible degree of risk, but would rather lower his ambitions than risk too much.
We asked three independent financial advisers for their suggestions: Ashley Clark, of Need An Adviser.com; Mike Marigold, of Montgomery Charles Financial Management; and Marc Ruse, of Swallow Financial Planning.
Case notes: Craig Tabengwa, 21, trainee lawyer, SE London
Salary: £12,750 a year.
Property: None. Craig lives with his parents but he hopes to save for a deposit on a house by the time he finishes his degree in 2009.
Pension: None, but Craig hopes to retire by the age of 55.
By recognising he needs to save for the future, Craig has made his first important financial decision, says Marc Ruse. The most common question advisers get asked is: "How much should I save?" - and there is no simple answer. In Craig's case, because he is at the beginning of what will hopefully be a very fruitful legal career and can expect his salary to increase greatly, it is even more difficult. Whatever he can afford to save now is unlikely to make much of an impact on his financial position in retirement compared to his earnings later in life.
After monthly expenses, Craig will have around £350 disposable income. Mike Marigold suggests he allocates £250 of this to a savings account each month. Because his main objectives are relatively short term, Craig should put his money into a flexible bank or building society account with a good interest rate, as equity-based ISAs or unit trusts would be too volatile over a three-year period.
However, Ashley Clark thinks there is a danger Craig could become disillusioned if he tries to save too much money and might end up spending it all or giving up saving altogether. He thinks Craig needs to save amounts that are easy to maintain and suggests dividing his money into four accounts. As well as his current account, he should open a "social" account, an "emergency" account and a "property account", and divide his disposable income between them.
In common with many younger people, Craig will find it extremely difficult to get on the property ladder. Marigold says Craig should save 5 per cent of the value of the property he wants, plus another 2 per cent to cover stamp duty and legal fees. As a rough guide, Craig would be able to raise four times his annual salary for a mortgage - which is unlikely to buy much in London. Because of this, an ideal solution for Craig might be a housing association shared-ownership scheme, says Clark. This way, Craig could buy as little as a quarter of a property and rent the other share, which would get him on the property ladder.
Ruse says Craig should avoid pensions for the time being and invest in an ISA instead. If he concentrates on saving up to the maximum ISA allowance first, he can use some of this fund to "catch up" his pension contributions later.
Saving enough money to use as a deposit on a property is going to be tough over the next few years and once Craig has graduated, started his career and built his savings to about six months' worth of salary - he can speak to a financial adviser about other investments.
Monthly outgoings: £250 on general living expenses and housekeeping, £300 on tax and £150 on entertainment and other incidentals. He's worried that he won't be able to put money away each month without being tempted to dip into these savings.Reuse content