Wealth Check: 'I'm just starting out and want to get into the habit of saving so I can buy a home'
Shona is desperate to get a hold of her finances so she can build for the future.
Saturday 06 June 2009
Shona, 21, has two paid part-time jobs, both in the charitable sector. She lives at home with her mother in Crouch End, north London.
Having graduated from Leeds University last summer, and only recently started paid employment, she is struggling to keep on top of her finances.
"I have no sense of financial control or budgeting at all. I spend without any idea of whether I can afford to spend, and so end up in a constant state of debt and borrowing from family members," she admits.
As well as help with getting her money situation under control, Shona is also ambitious to move home and get a car, so would like advice on saving so that she can work towards her goals. "I would like to be able to move into my own place within the next year. I would also like to pay off my existing debts and work towards buying a car," she says.
Income: Earns approximately £1,400 a month.
Monthly outgoings: £170 tax and National Insurance contributions, £750 living expenses including phone bill, food, going out and shopping.
Debt:Owes £1,445 in bank overdrafts and £13,000 to Student Loan Company.
Savings: ISAs worth £6,000.
Advice this week is given by Dennis Hall of Yellowtail Financial Planning, Danny Cox of Hargreaves Lansdown and Mark Osland of Formula.
All three experts agree that the top priority for Shona is to work out a budget. "Shona has identified what is probably the single most important factor that will determine financial success in her lifetime – budgeting. Regardless of the size of income, in my experience people that have grasped the concept of budgeting have the greatest financial stability," Dennis Hall says.
He recommends Shona calculates how much she spends each day by writing down all of her daily expenses in a notebook. "From this she can see where she can cut back and save more money." By writing down every time she spends money Shona can focus her mind and avoid over-spending, Hall points out.
"Once Shona has identified her spending, she should categorise it into three different types: essential (such as rent); important (such as clothing and mobile phone); and luxury (such as holidays, take-away coffees and eating out)," says Danny Cox. With all her spending listed, Shona can see where savings can be made, primarily by stopping or cutting down on luxuries and important items. "Armed with this information Shona can then set a strict budget which should create the space for repaying her debts and building better savings," says Cox.
Once Shona has worked out her budget, the experts recommend setting up a monthly direct debit from her current account to an ISA. This way each month a proportion of her income is being saved. Cox says: "If some of this surplus money is being set aside, perhaps with the aim of buying a car or, in the long-term, a deposit for a house, Shona is more likely to stick with it." Hall calculates that Shona has a surplus of around £480 a month. "If she has no savings structure in place this will likely be frittered away."
Shona should use some of her savings each month to pay off her overdraft, as the interest earned on the ISA is likely to be less than she is paying on her overdraft. "Her overdraft will be very expensive, yet she has money in her cash ISA," points out Mark Osland. "At the very least she should be working towards eliminating her overdraft by reducing it monthly or using some of her savings to pay it off."
Interest rates on student loans were reduced to 1.5 per cent from March 5 this year. Osland says that because Shona's gross earnings are higher than £15,000 a year, she will need to start paying off some of her student loan. "Based on her gross income, I would expect her to have to pay £162 per annum. She should speak to the Student Loans Company. Her desire to pay off her debts is admirable, but the interest rate on student loans is very low, so there is not such a pressing need to pay it off, unlike the overdraft."
All three advisers think Shona should ask her employers about a pension scheme. Cox says even though Shona is a long way off retirement, she should start thinking about the future. "If Shona is able to join a pension scheme run by either or both her employers she should consider doing so, especially if they will pay into the scheme."
Buying a car
Hall recommends that Shona thinks again about buying a car. "I can see the attraction of having a car, but is it really such a good idea? With all the costs of depreciation, maintenance, insurance, tax, etc, it is cheaper to take taxis everywhere, and someone else does the driving. For a younger driver, car ownership in London is a money pit."
For a free financial check-up, write to Wealth Check, The Independent, The Independent, 2 Derry Street, London, W8 5HF; or email firstname.lastname@example.org
Money roundup video: It's getting harder to sort out a mortgage
Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help
Is it really that bad in the bond market?
Five Questions On: GB Energy's new tariff
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
- 1 School kitchen manager 'fired from Colorado school for giving hungry students free lunches'
- 2 California man brutally beat 82-year-old Sikh grandfather he mistook for 'one of those people'
- 5 Charles Kennedy 'had better judgement drunk than many sober politicians' says Ian Hislop
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Church of England 'one generation away from extinction' after dramatic loss of followers
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...
£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...
Day In a Page
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
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.
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.
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.
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 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