The problem: Can a family save more from a limited income?
With a young family to consider, Karl and Jo Vice want to start slotting some money away to provide a safety net for the future.
Karl, 43, a lorry driver, and Jo, 39, a housewife, live in Leiston, Suffolk, with their two children, Ellie, 10, and Annie, six. They are looking to save for both the short and the long term.
"Our aim is to make sure the family have what they need - and, of course, to ensure they are happy," says Karl. "But we would like to save more to provide some sort of nest egg for the children."
The problem is, with an annual income of just £24,000, the family have little spare cash to put away at the end of each month - though they have managed to amass £3,100 in an instant access mini cash individual savings account (ISA) with Norwich & Peterborough (N&P) building society, paying 5.2 per cent.
"We were managing to save £50 a month, but now Christmas is approaching, this is tricky," adds Karl.
That said, the Vices are in the strong position of being debt-free, aside from their mortgage.
"We do occasionally make use of two credit cards," says Karl. "But we pay off the balance in full each month."
Karl and Jo bought their three-bedroom house in 2001 for £63,000. Since then, it has more than doubled in value and is now worth £150,000. The couple pay around £300 a month for their £46,000 20-year repayment mortgage with N&P, with interest fixed at 5 per cent for five years. This is due for review in January when the deal ends.
For the past 20 years Karl has been contributing 5 per cent of his salary to his company pension scheme, run by Prudential, but Jo has no retirement provision in place.
"I'm not concerned about pensions as I have lost some money in them before," says Karl, explaining why he is keen to save in other ways too. "I don't trust them and just want to put my money in safe investments."
The couple have joint life insurance with Norwich Union for £46,000, which is tied to their mortgage. They pay £22 a month for the cover.
They have no other protection policies.
The cure: Cut your bills and get the best interest rates
With little disposable income, and two children to provide for, Karl and Jo will struggle to save much in the short term.
"But they have done well to put themselves on a sound financial platform," says Philippa Gee at independent financial adviser (IFA) Torquil Clark. "They have no debt and live within their means."
Their next step, she adds, is to find ways of reducing their expenditure so they can put more money away each month - and to ensure they are benefiting from the best interest rates on savings accounts.
Karl and Jo need to look at their daily spending to see where cash could be saved, says Ms Gee. "Simply by shopping around for cheaper providers, they could probably cut utility bills, insurance premiums, mobile phone bills and other commitments."
There are a handful of "switching" websites that can help, such as moneysavingexpert.co.uk or simplyswitch.co.uk.
The couple also need to maximise the returns on their savings, she adds. For short-term needs, cash deposits are more appropriate, and cash ISAs are a good choice because the returns are tax-free.
However, Ms Gee urges them to monitor the returns offered by their N&P ISA and to keep an eye on other deals on the market, so they continue to benefit from competitive rates.
For a slightly higher return, for example, they could move their money to National Savings & Investments' Direct ISA, which currently pays 5.55 per cent.
Switching some money into stock market investments such as an equity ISA will provide greater potential for strong returns, says Ms Gee. "This will help pay for any long-term goals such as boosting retirement income or contributing towards the girls' higher education costs," she explains.
"But investing in this way does carry some risk - and the couple should take the view that this money should remain invested until Ellie is at least 18 years old," so there is time to ride out any downturns in the stock market.
Jon Willis, from IFA Unity, suggests Karl and Jo could begin by investing in a cautious managed fund, such as New Star's Tri-Star. "This invests over three types of asset class - UK equities, bonds and UK commercial property," he says.
Paying off credit card balances every month to avoid incurring any interest is sensible, says Phil Mines of IFA Antrams, urging them not to break this good habit by over-extending themselves in the future.
Karl and Jo must spend time planning a remortgage deal for the new year, as they are approaching the end of their fixed-rate term, says Ms Gee. If they don't, they will slip on to their lender's standard variable rate and suffer a sharp increase in monthly repayments.
She notes that they could find interest rates are higher when they come to remortgage: "They may need to find more money each month, so they must keep other financial arrangements as flexible as possible."
Taking out another fixed-rate deal will help them to budget better - and provide peace of mind that the mortgage repayments will not change during this period, adds Mr Willis.
Karl has paid into his occupational pension scheme for 20 years, and with at least another 20 years of possible contributions, he could receive a reasonable income from this, Mr Willis believes. "It is, however, important to monitor the pension and establish if the funds he is investing in are performing as they should."
Ms Gee says Karl should contact his pension provider and request a projection to see how much money he can expect to receive on retirement. He should then ask himself whether this will be enough.
Mr Mines adds that if, in five years' time, Karl's retirement planning is more important to him than his investments, he could reinvest his ISA funds in a private pension - and then claim tax relief at the same time.
"The new rules simplifying the taxation of pensions allow people to invest the equivalent of 100 per cent of their annual earnings [up to £215,000]."
Insurance should be a priority for a young family, and simply covering the mortgage is not enough, says Mr Mines. "Karl's family would be at risk if he died or was unable to work through accident or illness." He suggests taking out a 15-year income-protection policy; for around £10 a month in premiums, the family would have cover of up to £12,000 a year tax-free.
As Karl is the sole earner, adds Mr Willis, he could also look at critical illness cover.
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