Wealth Check: My children cost a fortune – how can I put cash aside?
With a seven-year-old and a new baby, one young couple want to rearrange their finances to make sure they give their kids the best possible start in life
Sunday 20 February 2011
Liz Booth, 35, has just returned to work after maternity leave, and is now keen to get her finances back on track.
Liz, who is from Holmfirth, West Yorkshire, has been married to her husband, Neil, for nine years, and the couple are determined to provide the best possible start in life that they can for their two children, aged seven and 10 months. Before going on maternity leave, Liz worked for the Halifax, but when she returned to work, at the end of January, she moved to the Yorkshire Building Society as a customer representative.
She earns around £7,750 a year.
The financial demands of bringing up two young children have made it difficult for Liz to build up substantial savings, but she has managed to slot away £700 in a Halifax children's saver account paying 4 per cent, as well as £50 in a Santander account paying 0.25 per cent, and £20 in a Halifax individual savings account (ISA).
"I'd like to know how I can reduce my outgoings and free up a bit of spare cash each month," she says. "I'd also like to be able to build up a buffer of around £5,000."
Over the years, Liz has amassed some debts, and owes £5,000 on a staff loan from the Halifax, and £5,000 on a Barclaycard credit card. "I took the loan out at a preferential rate of 6.4 per cent and this still has three years left to run," she says. "The card is interest-free until October, and I'm keen to get this paid off as quickly as I can. I also dip into my overdraft up to the £300 limit each month, but never go beyond this."
Looking to the longer-term, Liz has amassed around £3,000-£4,000 in a Standard Life stakeholder pension which is currently frozen. "I also have a Halifax staff pension and am waiting to find out the final figure, and have just begun paying into a staff pension at the Yorkshire, contributing 5 per cent of my salary, around £40 per month."
Liz and Neil bought their two-bed house in 1999 for £50,000, but have remortgaged since then and now have £91,000 outstanding on a five-year repayment deal with the Halifax, fixed until 2013.
"We were unfortunate to remortgage just before rates went down and now pay £640 per month," says Liz. "We are also keen to upsize to a three-bed place in the next few years."
Liz pays £45 a month for an £80,000 joint life insurance policy with £50,000 worth of critical illness cover from the Halifax.
Our panel of independent financial advisers agrees that while Liz has some sensible financial objectives, she first needs to get her debts under control, as expenditure and income are tight – and then needs to focus on building up her savings.
Deal with the debts
Martin Bamford from Informed Choice says paying off the £5,000 on Barclaycard should be the number-one priority for Liz. "When the 0 per cent deal ends this October, it will become harder to pay off this debt," he says. "The Halifax staff loan should be her next target – although this rate is competitive, and it sounds as though she is on track to fully repay this over the next three years."
Draw up a budget
Mr Bamford warns that dipping into the £300 authorised overdraft each month is evidence of poor budgeting.
"If Liz and her family suffer a financial emergency, they would find it hard to avoid getting into real difficulty quite quickly," he warns.
Tom Beckett from Salisbury Financial Services urges Liz to sit down and plan a household budget.
"She needs to identify areas in which she can cut back in order to pay down her debt and improve her savings," he says. "Assuming that essential spending cannot be trimmed back, she needs to review her non-essential commitments. An initial suggestion may be for Liz or Neil to take on a second job in the evenings or at weekends."
For emergencies only
Once Liz has drawn up a budget, she can then look to build up an emergency fund. "This should be equivalent to between three and six months of expenditure – so a £5,000 target for this looks sensible," says Mr Bamford.
Once Liz is in a position to save, she should use a cash ISA, as the interest is tax-free, recommends Danny Cox from Hargreaves Lansdown.
While fixing for five years just before rates went down was bad timing, this can only really be judged with the benefit of hindsight, and Liz needs to think carefully before moving to a new deal now, as she is likely to face early repayment penalties. Instead, Mr Beckett suggests she could ask her lender if the mortgage could temporarily be moved to interest-only to free up cash and pay down her debts.
"Or, Liz could ask her lender for a further advance on the mortgage to clear the other debts, as the interest rate is normally lower," he says.
"While the debt could cost more to repay, the debt consolidation could reduce monthly outgoings."
He also urges Liz to cater for the uncertainty of interest rates in 2013.
"Based on current expenditure, the family may struggle with higher repayments," he says. "They also need to bear in mind that while moving to a larger property is always an ideal, they may be hindered by stricter lending criteria when trying to borrow more money, not to mention the prohibitive costs of moving."
Mr Cox urges Liz to check the details of the Halifax pension. "If this is a final salary scheme, she should probably leave it where it is until retirement," he says. "If it is a money-purchase scheme, Liz could consider transferring this into the Yorkshire's scheme; she could also do the same with the Standard Life pension. Consolidation reduces paperwork, but there are unlikely to be any cost savings; it's also crucial to check if there are any penalties for transferring."
Mr Cox says Liz could save money by reviewing her current life cover and critical-illness plan.
"The current policy appears expensive, and it's unlikely she and Neil have enough life insurance," he says. "They should at least have enough cover to clear their debts and provide the survivor with a decent income. Liz should also check if her employer offers death-in-service benefits."
Mr Beckett adds that when finances permit, Liz and Neil should look to take out income protection, which would provide a monthly benefit in the event they are unable to work through illness.
Do you need a financial makeover?
Write to Julian Knight at The Independent on Sunday, 2 Derry Street, London W8 5HF
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
A student's guide to financial survival: You don't have to drown in debt at university
Bargain Hunter: Kit yourself out in sports gear - at a healthy discount of up to 75%
The HiFX guide to managing corporate foreign exchange and international payments
- 1 Arizona shooting: Gun instructor accidentally killed by nine-year-old girl with Uzi
- 2 Miley Cyrus' homeless MTV VMAs date, Jesse Helt, is wanted by the police
- 3 Paul Scholes: Manchester City were so good against Liverpool I felt like turning the television off
- 4 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 5 Pamela Anderson rejects ice bucket challenge because of ALS experiments on animals: 'Mice had holes drilled into their skulls'
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?
Arizona shooting: Gun instructor accidentally killed by nine-year-old girl with Uzi
- < Previous
- Next >
iJobs Money & Business
£25000 - £35000 Per Annum: The Green Recruitment Company: Job Title: Junior As...
£33000 - £40000 Per Annum Discretionary profit share: The Green Recruitment Co...
£20000 - £30000 per annum + OTE £45000: SThree: SThree are a global FTSE 250 b...
£350 - £400 per day: Orgtel: PMO Analyst - Risk - Banking - London - £350 - £4...
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