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



The Patient


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.

The Cure

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."

Debt

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.

Benefits

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.

Budgeting

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.

Retirement

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 - j.knight@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
life
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
News
Melissa and Joan Rivers together at an NBC event in May 2014
peopleDaughter Melissa thanks fans for 'outpouring of support'
Life and Style
tech
PROMOTED VIDEO
Life and Style
Chen Mao recovers in BK Hospital, Seoul
health
Sport
The giant banner displayed by Legia Warsaw supporters last night
football
Life and Style
One in six drivers cannot identify a single one of the main components found under the bonnet of an average car
motoringOne in six drivers can't carry out basic under-bonnet checks
News
news
Environment
Fungi pose the biggest threat globally and in the UK, where they threaten the country’s wheat and potato harvests
environmentCrop pests are 'grave threat to global food security'
News
i100
Voices
Pupils educated at schools like Eton (pictured) are far more likely to succeed in politics and the judiciary, the report found
voices
Arts and Entertainment
Simon Cowell is less than impressed with the Strictly/X Factor scheduling clash
tvSimon Cowell blasts BBC for breaking 'gentlemen's agreement' in scheduling war
News
peopleWrestling veteran drifting in and out of consciousness
Arts and Entertainment
Shady character: Jon Hamm as sports agent JB Bernstein in Million Dollar Arm
filmReview: Jon Hamm finally finds the right role on the big screen in Million Dollar Arm
News
Orson Welles made Citizen Kane at 25, and battled with Hollywood film studios thereafter
people
News
Brad Pitt and Angelina Jolie reportedly married in secret on Saturday
peopleSpokesperson for couple confirms they tied the knot on Saturday after almost a decade together
Sport
footballAnd Liverpool are happy despite drawing European champions
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

    £300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

    Head of Marketing (Online & Offline, Media, Digital, Strategy)

    £85000 - £100000 per annum: Ashdown Group: Head of Marketing - Slough, Berkshi...

    Database Developer (SSIS, TSQL, Microsoft SQL) London Finance

    £35000 - £55000 per annum: Harrington Starr: A Global global asset management ...

    Web Developer/UI Developer (HTML5, CSS3,Jquery) London

    £55000 - £65000 per annum: Harrington Starr: A Global Financial Service Organi...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone