Wealth Check: 'My parents rely on me for financial support'


Case notes

Michelle Adabra, 23, publishing assistant, Luton

Salary: £16,000 a year.

Debts: a student loan and a small graduate loan from a bank.

Savings: £100 in a savings account and an individual savings account.

Pension: Michelle is not currently making any pension contributions.

Monthly outgoings: £350 on travel costs, plus general living expenses.

Michelle Adabra works as a production assistant at a London-based publisher. She is worried about her lack of disposable cash, particularly because a large chunk of her £16,000 annual income goes to cover the cost of travel (£350 a month) from her Luton home to work. Michelle also has parents who rely on her for financial support. Michelle's goals include saving for a deposit on a house and a retirement plan, but she is being held back by debts.

We asked three independent financial advisers for their suggestions: Marc Ruse, of Swallow Financial Planning; Kim Steven Barrett, of KS Barrett & Associates; and Paul Duckworth, of Paul Duckworth IFAs.

DEBT

Michelle should pay off her student and graduate loans as a matter of priority, Paul Duckworth advises.

While student loans can look like cheap money, because the rate of interest payable is pegged to inflation, it is far easier to make long-term financial plans without borrowing hanging over you. If Michelle has any surplus income, this should be used to repay these debts as a priority.

SAVINGS

Michelle needs to ensure that her finances are solid enough to face up to the three major crises: death, serious illness and redundancy, Duckworth says.

Once her loans have been paid off, all three advisers recommend that she should start building an emergency fund. This would be the first call in the event of a crisis or an unexpected bill.

They all suggest she should keep three to six months' worth of money in an account such as a cash individual savings account.

ISAs offer instant access to your cash and interest is tax free. Marc Ruse says the best way to start is by setting up a monthly standing order or direct debit to her cash ISA. Even a few pounds each month will be a start (the maximum she can invest in a cash ISA is £250 a month).

Save & Spend's best-buy tables (see page 9) will help her identify the most generous accounts.

Michelle needs to concentrate on either earning a lot more money or cutting back on travel expenses, Ruse says. But better budgeting will be a start. She should write down exactly where every penny of her money goes each month and see if there is any way she can cut back on spending to fund regular savings.

With a clear idea of her cash-flow situation, when Michelle's income improves she will have a good idea of how much she can afford to put aside.

INVESTMENTS

Michelle describes herself as a cautious investor but with 40 years to go before retirement, Kim Barrett strongly advises her to consider a higher risk strategy to ensure good potential growth to her pension asset.

As a general rule, the more risk you are prepared to take, the greater the potential rewards. Ruse warns that if Michelle sticks to following a very cautious investment strategy, she may not reach her objectives.

PENSIONS

Ruse advises Michelle not to invest in a pension just yet. Her finances are not in good enough shape for her to save for both old age and shorter-term goals such as an emergency fund or a deposit on a house.

That said, Ruse suggests she should check what her employer offers in the way of occupational pension provision. If a pension contribution is available from her employer, then she should grab it if she can possibly afford to do so.

Duckworth says that even if her employer does not have a formal pension scheme, assuming the company employs at least five people, it should have a stakeholder plan into which Michelle would be able to make contributions.

Some employers will pay a matching contribution up to a certain percentage of pay if you join this scheme.

PROTECTION

Barrett says that if Michelle's parents are financially dependent upon her income then some basic life assurance policy may well be important - otherwise they could be in trouble if she died.

For someone of Michelle's age, assuming that she is in good health, a premium of £10 to £20 a month will buy her a reasonable amount of life cover.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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

    Guru Careers: Pricing Analyst

    £30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

    Guru Careers: C# Project Team Lead

    £55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

    Day In a Page

    Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

    The 161-page dossier that exposes Fifa's dark heart

    How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
    Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

    Exclusive interview with Tripoli PM Khalifa al-Ghweil

    'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
    Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

    Raymond Chandler's Los Angeles

    How the author foretold the Californian water crisis
    Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

    Art attack

    Chinese artist who posted funny image of President Xi Jinping facing five years in prison
    Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

    Cher is the new face of Marc Jacobs

    Alexander Fury explains why designers are turning to august stars to front their lines
    Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

    'I'm climbing Ben Nevis for my daughter'

    Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
    10 best wedding gift ideas

    It's that time of year again... 10 best wedding gift ideas

    Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
    Paul Scholes column: With the Premier League over for another year, here are my end of season awards

    Paul Scholes column

    With the Premier League over for another year, here are my end of season awards
    Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

    Liverpool have seen too much tragedy to forget Heysel

    Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
    Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

    Khan’s audition for Mayweather may turn into a no-win situation

    The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
    Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

    Blundering Blair quits as Middle East peace envoy – only Israel will miss him

    For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
    Fifa corruption arrests: All hail the Feds for riding to football's rescue

    Fifa corruption arrests

    All hail the Feds for riding to football's rescue, says Ian Herbert
    Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

    The Kurdish enclave still resisting the tyranny of Assad and Isis

    In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
    How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

    How I survived Cambodia's Killing Fields

    Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
    Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

    How Stephen Mangan got his range

    Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor