Wealth Check: 'I'm keen to save but should I switch from cash to shares?'
Data scientist Jason Dealey has the right approach to financial planning but wants to know the best long-term strategy
Sunday 06 January 2013
Data scientist Jason Dealey from south-east London is keen to save more, but not sure how best to do so. In the short term, he wants to build up a rainy-day fund, and in the longer term he wants to amass a big enough deposit so he can take the first step onto the property ladder.
In addition, as he's about to head off skiing for a month, the 25-year-old who earns £38,000, knows that he's going to need to think even more carefully about his money management over the next few weeks.
"I am still planning on working while I'm away," he says. "But I will have to budget carefully so as not to have to dip into my savings."
"I've been in this job for just over three years," he says. "This was my first job after university."
To date, Jason has managed to slot away £3,100 into a cash e-Isa with NatWest, but knows he has a long way to go if he is to build up a big enough sum for a house deposit in London.
The NatWest e-Isa is paying 2 per cent for balances under £10,000.
"I'm also considering transferring the money in my cash Isa into stocks and shares, as I think I now have a good amount to work with," he says. "But I'd like to know if this is a sensible decision.
"At the same time, I'd like to know what other steps I should be taking to start putting more money away each month, and where I should be saving that money."
Aside from the NatWest Isa, Jason has no other savings accounts or investments.
He does have a credit card, a NatWest Yourpoints World Mastercard, but he is disciplined about paying this off. "Initially I had a paltry credit limit of just £425 on my card, but this is now £1,250," he says. "I tend to buy everything on this card, and then pay it off in full at the end of the month."
Jason has no other cards or loans, and takes an active interest in money management.
"I keep track of my spending on an iPhone app," he says. "I also make purchases through Quidco.com whenever I can, to benefit from cashback."
At present, Jason is renting a three-bedroom flat in Kennington along with two other people.
"I moved in to the flatshare around two and a half years ago and pay £552 a month in rent," he says. "On top of this I pay £80 a month to cover bills."
Jason pays into a workplace pension through his employer. "The pension is provided by Zurich," he says. "I pay in 5 per cent which is around £140 each month. My employer then contributes 5 per cent."
While Jason has no protection policies in place at present, he's keen to know if this is something he should look to consider.
Our panel of independent financial advisers agree that Jason seems to have a very sensible attitude to debt; they also commend him for keeping track of his spending.
They suggest he should focus his attention on amassing the biggest house deposit he can, while keeping up with his pension saving.
Build up savings
Nick Evans from adviser One Life Wealth Planning, urges Jason to work on building his savings to ensure he has adequate emergency funds in place in cash.
"Generally speaking, this should be between three and six times' typical monthly spending," he says. "Having cash will give him a good foundation to build on over time."
This will also help Jason avoid the need to go into debt, which can be very expensive.
In the current tax year, Jason is able to save up to £5,640 into a cash Isa; interest is paid tax free.
While Jason may be able to get a slightly better rate by shopping around, Patrick Connolly, from adviser AWD Chase de Vere, points out that with the amount he has slotted away at present, this won't make a major difference to his overall returns.
"I'd be inclined to suggest that he leaves his existing savings where they are," he says. "But Jason should keep track of the rate he is earning with a view to transferring his money if this should get uncompetitive. This will get even more important when he has larger sums squirrelled away."
Don't rush into stocks and shares
While Jason is thinking about transferring his cash Isa into a stocks and shares Isa, Aj Somal, from adviser Aurora Financial Planning, says this may not be in his best interests at this stage.
This is a view shared by Mr Connolly. "Jason should aim to stick with cash Isas while he builds larger savings for both short-term needs, such as an emergency fund, and to help pay for his skiing holiday," he says.
"He should also add to his cash savings to save for longer-term goals such as a mortgage deposit. A deposit is best achieved by saving in cash but he needs to realise that this can take some time."
Work hard at saving for a deposit
Mr Connolly says most lenders are now looking for a minimum deposit of 10 per cent, but adds that an even higher deposit of 15 per cent might be needed to get some of the better mortgage deals.
"Jason really does need to focus on his cash savings," he says.
Mr Somal suggests Jason should look to make savings by reviewing all his outgoings. "He may be able to save money by switching energy supplier," he says. "The additional disposable income could go towards the deposit."
Mr Evans adds that Jason should try to be clearer about his goals. "He should set time deadlines, and be specific about what he is aiming for and why that is important," he says.
"This will help him reach a balance between saving and spending each month."
Maintain pension saving
Jason is in a decent position in regard to his pension saving, according to Mr Connolly.
"He is paying in regularly, and his employer matches his contributions," he says. "I would strongly encourage Jason to continue with contributions at this level."
Mr Connolly recommends Jason review where his pension money is invested to ensure this is appropriate. "As he is young and making regular contributions with a long time remaining until he will draw pension benefits, Jason can take a reasonably high, although not excessive, level of investment risk," he says.
"For most people, the best way to save for the longer term is a combination of pensions, which provide initial tax relief but which aren't flexible, and stocks and shares Isas, which are also tax efficient, but which have far greater flexibility."
That said, Mr Connolly adds that while Jason should look at stocks and shares Isas at some point, his more immediate priority should be building his cash savings to meet shorter-term goals.
Mr Somal says Jason should seek to increase his pension contributions over the next few years.
"This will further enhance his retirement provision going forward," he says.
Consider a cashback card
As Jason pays off his credit card each month, Mr Somal suggests he could consider a cashback card.
"This would reward him for usage," he says.
Mr Connolly urges Jason to find out what protection products are offered by his employer.
"Many employers provide life assurance and income protection benefits," he says.
Mr Evans adds that while Jason does not need life cover at the moment, he does need an income protection policy.
"This would protect him if he were unable to work due to sickness or disability," he says.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
How couples can protect their financial interests when cohabiting
Authorities failing in hunt for 'most wanted' tax dodgers who owe HMRC £844m
Buyers beware of new-build home headaches
Dirty tricks in a divorce can cause some nasty surprises
A student's guide to financial survival: You don't have to drown in debt at university
- 1 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 2 Joan Rivers: 'Palestinians deserve to be dead'
- 3 Daily Show's Jon Stewart destroys Fox News for its Ferguson coverage
- 4 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 5 Botched ice bucket challenge leaves man critically injured after plane drops hundreds of gallons of water
Exclusive: We share blame for creating 'jihad generation', says Muslim strategist
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Ukip Douglas Carswell defection: Tory MP jumps ship to join Nigel Farage
- < Previous
- Next >
iJobs Money & Business
£85000 - £100000 per annum: Ashdown Group: Head of Marketing - Slough, Berkshi...
£35000 - £55000 per annum: Harrington Starr: A Global global asset management ...
£55000 - £65000 per annum: Harrington Starr: A Global Financial Service Organi...
£50000 - £60000 per annum: Harrington Starr: A world leading business intellig...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony