Wealth Check: 'I'm struggling to cope with finances after my divorce'
A charity manager is finding it difficult to keep up with the cost of living and plan for the future despite her reasonable salary
Sunday 21 August 2011
Following Karen Ritchie's divorce three years ago, she finds it difficult coping with the cost of living. "I cannot afford the lifestyle I lead, and I have no financial security for the future at all," says Karen, 41, from Worksop, Nottinghamshire. "I am constantly trying to get in control of my finances, but never succeed."
She frequently switches credit cards to take advantage of interest-free deals, and currently owes £6,000 spread across three cards. One is a Virgin credit card, and another Barclaycard – both with 12-month interest-free periods for balance transfers. She also has a First Direct credit card with an APR of 19.9 per cent used for spending, although she pays the balance off on this every month.
"I don't like paying interest on my debt so move it around," she says. "I also owe £1,500 to a friend. I'm a single parent with two girls at university. I do struggle, although I manage to help them out with clothes and food."
Despite earning a "good" income of £31,000 for her role as manager of children's charity Home-Start Sheffield, she usually finds herself overdrawn as pay day approaches.
Karen rents a three-bed house for £475 a month. "I'm still on the mortgage for my old house, but I don't pay anything towards it. My ex-husband considers this his house, so it's his debt," she says. "We were married for 19 years and the split was amicable, but there wasn't any equity in the house at the time."
With no savings or investments, Karen is keen to start sorting out her finances. "When I save money it's almost guaranteed that something will happen that will mean I have to use it, such as my car breaking down, or the dog needing to go to the vet," she says. "My main expense is petrol."
Turning to retirement planning, Karen contributed to an employer's pension paying 6 per cent of salary, with an additional 8.25 per cent paid by her employer for 10 years. "I am hoping to start up contributions again, and unsure how much it's worth now." She has no protection policies in place.
Many will empathise with Karen's situation, agree the advisers, as she is one of millions who earn a good salary but still struggle as the cost of living continues to spiral.
"In Karen's case, she has been getting used to a new phase of her life following her divorce, and it is understandable that she has placed short-term priorities over long-term planning," says Robert Hair, from Solicitors and asset managers Turcan Connell. "The good news is that with a few pragmatic steps, she could be on the way to achieving her financial goals."
Karen is burying her head in the sand on a couple of matters, warn the advisers. Despite viewing the mortgage for her old house as being solely her husband's responsibility, if her name is on the mortgage it's technically her debt too, the advisers stress. If he fell into difficulty and was unable to repay this, debt collectors would be able to seek payment from her. She must ensure that her name is taken off the mortgage as soon as possible.
Matthew Rich from IFA Alan Seward Financial adds: "She should also get an independent valuation of the house she owns with her ex-husband to find out how much is outstanding on the mortgage. This will tell her if there is any equity and she can negotiate a deal with her ex to remove her name from the mortgage."
She also needs to wipe her credit card debt, which should be possible given her income – as after all, interest-free periods don't last for ever and it is a task to switch cards constantly. "By cutting up her credit cards up and setting up a direct debit of £250 a month, it will take her two and a half years to get rid of the credit card and loan to her friend," says Mr Hair. "This should be easily possible – and she might be able to put even more towards this if she budgets carefully."
Once she has cleared her debts she can focus on saving for a deposit to buy a house, as well as creating an emergency savings "buffer" of ideally three months' income. Cash individual savings accounts (ISAs) are the most tax-efficient way to do this, and she is able to search for the most attractive rates on sites such as moneyfacts.co.uk.
Karen also needs to visit her Citizens Advice Bureau to make sure that she is claiming everything that she is due, says Mr Hair. "As her daughters are still in full-time education, she may be eligible for family tax credit, although she would need to check the details for this." Millions miss out on benefits they are entitled to every year, so it's important to find out what you're able to claim.
Once Karen's priorities have been dealt with, she needs to set a monthly budget which will help her to work out how much she can put towards paying off her debt each month.
Danny Cox from IFA Hargreaves Lansdown says: "Budgeting to keep your financial affairs under control is easy in theory: spend less than you earn and then save the difference. This clearly isn't happening and Karen needs to make some difficult decisions to get back on track. Karen is talking home about £1,950 a month after tax, and after rent she is left with about £1,475 to meet debt repayments and other living costs."
He recommends keeping a spending diary to focus the mind on how and when she spends money, and also help her stick to a budget.
She already does what she can to keep her bills down and she should continue to do that: shopping around for the best deals; ideally fixing her utility prices; moving her credit cards around to avoid paying interest; and looking for coupons and deals on her shopping, says Mr Hair.
Karen is risking a bleak retirement without continuing to make provision for this, warns Mr Cox. If she can find a way of affording the pension contributions, is she able to reinstate these with her employer? This is an important consideration as otherwise she is wasting her employer's contribution – and therefore effectively turning down a pay rise.
"The pension scheme she paid into for over 10 years should have built to a decent fund size," says Mr Cox. "Karen should review this scheme regularly, and if the performance falters, she has the option of transferring the value to another pension scheme – although she needs to be careful of any costs or penalties for doing do."
Do you need a financial makeover?
Write to Julian Knight at The Independent on Sunday, 2 Derry Street, London W8 5HF - firstname.lastname@example.org
- 1 Liam Gallagher brands Kanye West 'utter s**t' during BRIT Awards performance
- 2 Isis burns thousands of books and rare manuscripts from Mosul's libraries
- 3 People who sleep more than eight hours are more likely to have a stroke, research shows
- 4 Kanye West climbs on table at Nando's to crowd chants of 'Yeezus' before Brit Awards 2015 performance of 'All Day'
- 5 New theory could prove how life began and disprove God
Oscars 2015: Birdman beats Boyhood as Eddie Redmayne and Patricia Arquette win big - as it happened
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
Aqsa Mahmood branded a 'disgrace' by her parents after claims she recruited three UK girls flying to Middle East
Russia's roadmap for annexing eastern Ukraine 'leaked from Vladimir Putin's office'
iJobs Money & Business
£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...
£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...
Day In a Page
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
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
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