Wealth Check: 'I'm still living with mum, but too hard-up to move'
Graduate Matthew Cooksey wants a place of his own in London but finds it unaffordable when his wages mean he spends so much time in the red
Sunday 05 February 2012
Matthew Cooksey from Chessington, Kingston-upon-Thames, has been living at home since graduating, but is now keen to build up funds so he can move into his own place.
The 24-year-old left Aberystwyth university last year with a 2:1 in international politics, and is currently working as an operations assistant in a small company of six people.
"I started as an intern last June, getting only expenses, but started to be paid properly in September, earning £8 per hour," he says.
Matthew tries hard to be disciplined with his finances, but struggles to make ends meet on his earnings.
"I have an interest-free overdraft of £1,600 and essentially live on this," he says. "My pay tends to put me back in the black for a brief time, but I then go very quickly back into the red."
Matthew also has a Virgin Amex credit card and a student loan, which he hasn't begun to pay back yet. "The credit card has a limit of £2,400, and I do all my spending on this for the Airmiles," he adds. "But I then make sure I pay it off in full every month."
Matthew has £1,400 in an individual savings account with West Bromwich building society at a rate of 3.07 per cent.
"I also have about £8,000 in stocks and shares with BP, RBS, Apple, Sainsbury's, and Tesco," he says. "I made these investments myself, and am up from when I bought them. I bought BP and RBS during the oil spill, Apple in October, and Sainsbury's and Tesco in mid-January."
At present, Matthew does not have a pension. "The company I work for doesn't offer one, and I've not yet set anything up myself," he says. "I also have no protection policies in place."
As Matthew lives with his mum, he is in the fortunate position of being able to live rent-free. "This helps a lot with making ends meet, but my financial goal is to move into a place of my own," he says.
"The problem is, on my earnings of around £14,000, this is simply unaffordable. The cost of London living is so high that this would only just pay for rent, bills and transport each month."
Matthew is looking to apply for a graduate job in a bid to boost his earnings. "While I'm happy in my job and find it really enjoyable and interesting, the wage is unsustainable," he says. "I don't seem to have much choice but to find a new job but am not having much luck at the moment."
Our panel of independent financial advisers agree that Matthew has done well to secure a job in the current economic climate, but urge him to focus now on securing permanent long-term employment so he can build up his savings and move out of home.
They commend him for working hard to maintain a good credit rating, but also urge him to get some protection in place, and not too ignore pension planning for too long.
Focus on budgeting
Matthew has made a wise move investing in a cash Isa and has a found a good rate of interest, according to Justin King from MFP Wealth Management.
"However, living in his overdraft can be a dangerous strategy, as if there are months when he doesn't budget properly, or experiences unexpected costs, he could end up incurring hefty penalties," he says. "Matthew needs to work hard at budgeting to keep his costs as low as possible until his income increases."
David Brunning from Brunning Newman Houghton Limited urges Matthew to strengthen his cash reserves. "We recommend having savings equivalent to three months' outgoings," he says.
Find ways to boost income
Mr Brunning adds that while Matthew has set himself the realistic goal of moving out of his mum's house, achieving this depends largely on his success in finding a better-paying job.
"Matthew's position is a sign of the times, as many young people are entering a labour market offering limited opportunity and suppressed wages," he says. "But he does have the right mindset when it comes to understanding that the best way to seek employment is from employment."
Mr King suggests Matthew should also consider other ways of getting additional income. "This will either come by promotion or entrepreneurship," Mr King says.
"This could be extra part-time work or freelance opportunities, or even setting up a small part-time business to run alongside his full-time job."
Research rental costs
Mr Brunning urges Matthew to do the maths to ensure that renting his own flat is sustainable. "He needs to set a target income based on the expected costs of running a home," he says. "It may then be worth seeking professional careers advice to explore the available opportunities."
Getting onto the property ladder
If Matthew is determined to buy a property, rather than rent, he will needs to amass an adequate deposit, and boost his income, according to David Penny from Invest Southwest.
"One option would be to consider one of the shared-ownership schemes currently available," he says. "For example, the Government's new insurance scheme enables buyers to purchase new-build properties with a deposit of just 5 per cent."
Another option, says Mr Brunning, is to think about getting together with friends to buy a house. "The low mortgage rates on offer compare favourably against rents in many areas," he says.
Think carefully about equities
Mr Penny says he is concerned about Matthew's £8,000 direct investment into high-risk individual equities.
"I would want to be sure that Matthew fully understands how high risk such a strategy is, and that he would be comfortable with the significant losses should they occur, which they could well do," he says.
Mr King suggests a low-cost investment tracker held in an Isa could offer more diversification and lower risk.
"I applaud his strategy of buying depressed stocks, but market timing – and knowing when to sell – proves difficult for even seasoned professional fund managers," he says.
Be a responsible borrower
While Matthew is in work he should carry on demonstrating he is a responsible borrower, according to Mr Penny. "Matthew is already doing well at this with this overdraft and credit card, and this will be good for his credit rating and ultimately his ability to get a mortgage," he says. He adds Matthew is right to leave his student loan unpaid for the time being. "This should have no adverse effect on his ability to secure a mortgage, and is on an extremely low rate of interest," he says.
Don't ignore pension planning
Given that in the short term, all Matthew's resources will be going towards renting or buying his own home, he can afford not to worry too much about pension saving for the time being, according to Mr Penny.
"His employer is very likely to offer him a Nest-style work-related pension in the next two or three years, and that will be a good start," he says. "But once he has found a new home and got proper protection insurance in place, he should not delay pension planning any further."
Mr Brunning agrees that while Matthew may view a pension as low on his list of financial priorities, pensions are a tax-efficient way of saving.
Take out protection
Mr Penny urges Matthew to think carefully about protection. "He does not need life insurance as he has no dependants, but would be in trouble if he were unable to work for any length of time due to sickness or disability," he says.
"He should consider income protection, as this can be as low as £15 or £20 a month and can provide a replacement income until retirement, recovery or death; critical illness cover and unemployment cover could also be a consideration."
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