Wealth Check: Nineteen and living for tomorrow
Sunday 06 August 2006
The problem: A home, a car, a pension. Can she live the dream?
Emma Stanley from Flint, North Wales, is training to be an accountant. But with ambitions to buy a car, own a home and one day run her own accounting business, she will have to sort out her own financial figures.
For the moment, those dreams are some way off. Emma, who is 19, first needs to pass her examinations - she is studying for the Association of Accounting Technicians (AAT) qualification - and gain the relevant experience.
Since finishing her A-levels just over a year ago, Emma has worked as an accounts clerk at a small firm, on a salary of £9,300. She has no credit cards or loans, and while she does have a Dorothy Perkins store card, she pays it off each month.
"And I don't have any student debts, as I went straight into work when I left school."
Emma has also been disciplined about building up her savings and already has just over £3,000 in a tax-free mini cash individual savings account (ISA) with Smile, paying 4.5 per cent, and £100 in another Smile account at 4 per cent.
While she lives at home with her parents, paying £120 a month in rent, she is keen to get on to the property ladder in the near future. More immediately, she wants to save up to buy a car.
Emma is also saving for the longer term, and has just begun paying £23 a month into a stakeholder pension. "This was recommended by my employer, but I'm not sure if it is the right product for me."
At present, she has no protection policies in place.
The cure: Don't rush to get on the property ladder
Emma is in the "enviable position" of not being saddled with huge amounts of debt from university, and should try to keep it this way, says Ben Yearsley at independent financial adviser (IFA) Hargreaves Lansdown.
"Emma has lots of goals she wants to achieve over the next few years, but needs to organise her priorities."
He recommends she draw up a budget detailing her income and outgoings, so she can work out where savings can be made.
"Her chosen career will pay well eventually," he adds, "and it may be worth waiting until she is either partially or fully qualified before looking at buying her own home. If she waits a few years, this gives her a chance to build up a sizeable deposit."
As Emma's immediate goal is to buy a car, she should do this by paying more into her ISA, says Amanda Davidson at IFA Baigrie Davies.
In the longer term, she urges Emma to carry out thorough research before going ahead with her plans to run her own business. "She's got some good grounding in terms of learning accountancy, but she will need to take broader soundings from other professionals."
The mini cash ISA is the right home for her money, says Ms Davidson, but Emma should keep an eye on the interest rates as these may change.
Mr Yearsley adds that with plans to buy a car, and then a home, she should think about setting up a monthly standing order between her wages and her ISA to build this pot up as quickly as possible. "She can contribute up to £3,000 a year tax-free."
Mr Yearsley says Emma should continue resisting the temptation to take out plastic. "Many people obtain credit cards and then spend, spend, spend - and get themselves into horrendous amounts of debt."
While Emma benefits from paying a very low rent to her parents, she will need to pay a lot more when she moves away, cautions Drew Wotherspoon at IFA John Charcol. But he adds that as she has no debts, she is "a mortgage firm's dream".
"Several lenders now base their borrowing criteria on affordability, instead of the traditional strict income multiples. Emma will benefit from this."
But he suggests she wait until her salary has gone up, adding that to get the best mortgage deals, she should work towards saving for a 10 per cent deposit.
Ms Davidson says Emma will also need to budget for legal and arrangement fees, and stamp duty.
Ms Davidson applauds Emma's decision to make a start on a pension at such a young age. "It may not be a huge amount of money, but given the timescale involved, these sums will have a real impact on her retirement income."
She adds that a stakeholder pension makes sense for Emma as it is flexible - allowing her to stop and start contributions whenever she wants - and the charges are capped. However, Mr Yearsley says that while these pensions are a low-cost option, there is limited investment choice.
"Emma doesn't necessarily have to stay in the stakeholder - unless her employer pays into it for her," he says. "She should seek advice as there are other types of pension she could look at."
Emma should consider this once she buys a home, says Ms Davidson. "It would be sensible to have a life assurance and critical illness plan to cover the mortgage amount, and she should also consider income protection when her salary increases."
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