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

PROMOTED VIDEO
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
Sport
footballBrighton vs Arsenal match report
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
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

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project
    Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

    Diana Krall interview

    The jazz singer on being friends with Elton John, outer space and skiing in Dubai
    Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

    Pinstriped for action

    A glimpse of what the very rich man will be wearing this winter
    Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

    Russell T Davies & Ben Cook: How we met

    'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
    Bill Granger recipes: Our chef serves up his favourite Japanese dishes

    Bill Granger's Japanese recipes

    Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine