Wealth Check: Protection policies are a priority in plans for the future

Our experts advise 27-year-old Aled to get life insurance to cover the mortgage on his cottage in south Wales where he lives with his partner

The patient

Aled Pashley is keen to get his finances on track so he can plan for the future – and potentially for a family a little further down the line.

The 27-year-old lives in a three-bedroom cottage in Neath, south Wales, with his partner, Charley Foy, aged 21.

Aled is self-employed and works part time in finance, and part time as an administrator at his father's financial firm.

"I currently earn around £26,000 a year," he says. "In addition, I do some work in the music industry. This involves me running a small label, arranging gigs and playing in a few bands."

Aled is working on building up his savings and currently has just over £2,500 slotted away.

"I have around £1,650 in a cash individual savings account (Isa) with NatWest paying 1.98 per cent, £800 in a NatWest e-Saver account paying 1 per cent, and £100 in a Post Office e-Saver account paying 0.9 per cent."

At present, Aled has no money in investments.

"Any spare cash left over at the end of each month usually gets put away into one of my savings accounts," he says.

Aled bought the home that he shares with Charley in January 2011 for £144,500.

"I felt it was a good time to try and get onto the property ladder as prices in the area seemed to be at the lowest they'd been for some time," he says. "My parents helped out with the deposit, contributing around £55,000. I then managed to get a mortgage with NatWest for around £86,000. I'm currently on a fixed-rate deal at 3.36 per cent, although I started with a rate of 1.99 per cent for the first two years."

The mortgage is interest-only and set to run for just eight years.

"For various reasons, the only way I could arrange things at the time was to take a short mortgage on an interest-only basis with a view to remortgaging at the end of eight years," says Aled. "When I do this, I hope to move to a more standard 25-year term – and to a repayment deal."

As Charley is still a student, the mortgage is based on Aled's earnings alone.

"I effectively pay this on my own, although Charley does contribute some of her student loan to the general household outgoings," he says.

Aled didn't take out a student loan at university, so he is debt-free.

"I do have several credit cards – including a Play.com card and Amazon card – but use these purely for the cashback incentives, and pay off my balance in full on a weekly basis. I also make as many purchases as possible with any offers I can find, or through a cashback site such as Topcashback."

Aled has opted to take out a stakeholder pension with Scottish Widows. He pays £40 a month into this. I'd like to increase my contributions as soon as it is reasonable to do so," he says.

At the moment, Aled has no protection policies in place but is keen to review this.

"My ultimate financial goal is to provide a high standard of living for myself, my partner, and potentially then for a family should children come along," says Aled. "My priorities will always be clearing debt and saving for retirement, but I also need to think about other possible future expenses, such as private school fees."

The cure

Our panel of independent financial advisers commend Aled on being organised with his finances, disciplined about not building up debt, and for working to try and amass savings both for the short-term and the future. However, they urge him to put protection policies in place as a matter of priority.

Arrange protection urgently

Life insurance to cover the mortgage on Aled's death is particularly important given Charley is not earning at the moment, says Alex Pegley from Calculis Financial Planners.

"This could cost just £5 per month for a 25-year term and would enable her to go on living in the house were Aled no longer around."

Danny Cox from Hargreaves Lansdown recommends the couple also consider the risk of ill-health.

"As Aled is self-employed, his earnings may be variable," he says. "Income protection is likely to be the best solution, or, in the absence of this, a combination of accident and sickness insurance and critical illness cover."

Aled should also make a will, he adds.

"At present, should he die, Charley will have no rights to the cottage," he warns. "Without a will the property will be subject to the rules of intestacy and pass either to his siblings or parents."

Build up a bigger emergency fund

Aled is being very organised by putting money aside for specific requirements, says Patrick Connolly from Chase de Vere.

"But he needs to continue to build his cash savings, particularly in regard to his emergency funds," he says. "Having money available in cash will help him avoid going into debt should short-term needs arise."

Ideally, Aled should aim to have the equivalent of six months' expenditure squirreled away.

Mr Pegley adds that Aled should put as much of his savings as possible into a cash Isa where all interest is tax free.

Think about investing further down the line

Aled's stakeholder pension from Scottish Widows is a reasonable option, according to Mr Connolly.

"This has an annual charge of 0.73 per cent and access to a range of investment funds," he says.

But Mr Cox adds that while Aled has made a decent start in terms of his pension saving, £40 a month is only a starting point.

"He should be looking to save a percentage broadly equivalent to half his age – or 13 per cent of earnings – to provide a decent income," he says. "Equally, if increasing pension saving to this level is unrealistic given Aled's aim to reduce his mortgage, he should look to build his contributions over time."

Increase pension contributions

Mr Connolly says investments are not Aled's biggest priority at present.

"First, he needs to build up further cash savings," he says. "Then he should look at longer-term investments alongside pensions."

Review mortgage arrangements

While Aled has done well to get on to the property ladder, Mr Connolly is concerned he has such a short mortgage term – and this has been arranged on an interest-only basis with no real plan to pay it off.

"Aled may be planning to address this at the end of the eight-year term, but I'd recommend he reviews his mortgage options now," he says.

First off, Aled needs to find out if there are any penalties for stopping his current mortgage early.

"If he can move without penalty, he should see if there's a cheaper rate available and switch to a repayment basis," he says. "If Aled is concerned about being able to afford the higher monthly cost that this entails, he needs to give some thought to how he will do this in the future."

Mr Pegley agrees that it's important for Aled to move to a repayment mortgage as soon as he can.

"This will mean the house belongs to him – and not to the bank – in the future."

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

Arts and Entertainment
TVShow's twee, safe facade smashed by ice cream melting scandal
News
newsVideo for No campaign was meant to get women voting
Sport
Wayne Rooney talks to the media during a press conference
sport
Arts and Entertainment
tv
PROMOTED VIDEO
Sport
Alexis Sanchez celebrates after scoring his first goal for Arsenal in the Champions League qualifier against Besiktas
sportChilean's first goal for the club secures place in draw for Champions League group stages
News
i100
News
Down time: an employee of Google uses the slide to get to the canteen
scienceBosses are inventing surprising ways of making us work harder
Arts and Entertainment
Amis: 'The racial situation in the US is as bad as it’s been since the Civil War'
booksAuthor says he might come back across Atlantic after all
Extras
indybest
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

    PMO Analyst - Risk - Banking - London - £350-£400

    £350 - £400 per day: Orgtel: PMO Analyst - Risk - Banking - London - £350 - £4...

    C# Developer (C#, ASP.NET Developer, SQL, MVC, WPF, Real-Time F

    £40000 - £48000 per annum + benefits+bonus+package: Harrington Starr: C# Devel...

    C# Swift Payment Developer (C#, ASP.NET, .NET, MVC, Authorize.N

    £45000 - £60000 per annum + benefits+bonus+package: Harrington Starr: C# Swift...

    DevOps Engineer - Linux, Shell, Bash, Solaris, UNIX, Salt-Stack

    Negotiable: Harrington Starr: A fast growing Financial Services organisation b...

    Day In a Page

    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
    Amazon is buying Twitch for £600m - but why do people want to watch others playing Xbox?

    What is the appeal of Twitch?

    Amazon is buying the video-game-themed online streaming site for £600m - but why do people want to watch others playing Xbox?
    Tip-tapping typewriters, ripe pongs and slides in the office: Bosses are inventing surprising ways of making us work harder

    How bosses are making us work harder

    As it is revealed that one newspaper office pumps out the sound of typewriters to increase productivity, Gillian Orr explores the other devices designed to motivate staff
    Manufacturers are struggling to keep up with the resurgence in vinyl records

    Hard pressed: Resurgence in vinyl records

    As the resurgence in vinyl records continues, manufacturers and their outdated machinery are struggling to keep up with the demand
    Tony Jordan: 'I turned down the chance to research Charles Dickens for a TV series nine times ... then I found a kindred spirit'

    A tale of two writers

    Offered the chance to research Charles Dickens for a TV series, Tony Jordan turned it down. Nine times. The man behind EastEnders and Life on Mars didn’t feel right for the job. Finally, he gave in - and found an unexpected kindred spirit
    Could a later start to the school day be the most useful educational reform of all?

    Should pupils get a lie in?

    Doctors want a later start to the school day so that pupils can sleep later. Not because teenagers are lazy, explains Simon Usborne - it's all down to their circadian rhythms
    Prepare for Jewish jokes – as Jewish comedians get their own festival

    Prepare for Jewish jokes...

    ... as Jewish comedians get their own festival
    SJ Watson: 'I still can't quite believe that Before I Go to Sleep started in my head'

    A dream come true for SJ Watson

    Watson was working part time in the NHS when his debut novel, Before I Go to Sleep, became a bestseller. Now it's a Hollywood movie, too. Here he recalls the whirlwind journey from children’s ward to A-list film set
    10 best cycling bags for commuters

    10 best cycling bags for commuters

    Gear up for next week’s National Cycle to Work day with one of these practical backpacks and messenger bags
    Paul Scholes: Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United

    Paul Scholes column

    Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United
    Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

    Kate Bush shows a voice untroubled by time

    A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
    Robot sheepdog technology could be used to save people from burning buildings

    The science of herding is cracked

    Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
    Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

    This tyrant doesn’t rule

    It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?