Wealth Check: 'Running costs of our first home are always more than we budget for'

Nicola Coleman is an assistant accountant training to become aCertified Accountant by 2013, which could see her income rise dramatically. She recently bought her first home in Epsom, Surrey, and her main financial concerns are her mortgage and living expenses.

"I have been in my job for 21 months and have just bought a home worth £150,000," she says. "I also want to think about the future and my main goal for investing money is to help towards my pension and retirement."

Nicola is not married and has no children so she hopes to use extra funds from her steadily increasing pay to secure her long-term financial position.

"I am not currently contributing to a pension scheme, however, it is likely I will have the option through work within the next two years," she adds. "I would like advice on savings and investments which I can afford once the cost of living has been deducted from my monthly income."

Case notes

Annual income: £24,000 (increasing by £1,500 every quarter)
Pension: None
Savings: £1,000 in an ISA

Offering advice this week are David Brunning of Brunning Newman Houghton, Brian Tabor of Carematters, and Robert Forbes of Plutus Wealth Management...

Budgeting and protection

"Nicola's situation is stronger than many people of her age but she needs to be very careful," says Forbes. "She needs to have an emergency fund of three months' outgoings and she should look at low-cost income protection insurance to provide a fallback if she's ill and unable to work."

"The provisioning and running costs of our first home are almost always higher than we budget for, so it is important that Nicola commits to few long-term financial plans such as a pension arrangement until these day-to-day costs are known," says Tabor. "Nicola has no financial protection in place to deal with the financial effects of long-term illness. While statistically unlikely, serious and long-term illness can strike us all and scupper the best financial planning."

Brunning agrees, saying: "Nicola makes no mention of life assurance or other arrangements to support her lifestyle or mortgage payments in the event that she fell seriously ill or died, which is an important oversight."

Brunning also says Nicola should increase her reserves to £4,500 – three months' household expenditure – as an emergency fund.


"Having built up her cash reserves to a realistic level, Nicola should turn her attention to creating capital," says Brunning. "She should use the tax benefits offered by ISAs – several companies offer regular premium investment ISAs starting from £50 per month."

Nicola must be able to react to changing circumstances, according to Forbes. "In the short term, maintaining flexibility is the key to building Nicola's wealth," he explains. "Keeping money in an ISA gives her the flexibility of paying off a chunk of her mortgage in 2012 (when her fixed rate comes to an end) if the economic circumstances make it necessary, which could give her access to better loan-to-value mortgages and better rates."

Pensions and retirement:

"I believe that in the next couple of years Nicola should only invest in a pension arrangement if her employer is also willing to contribute or she becomes a higher tax rate payer," says Tabor. "If neither of these applies and she has saved sufficiently into her 'buffer' savings, she might consider saving regularly into a 'stocks and shares' ISA. This can be subsequently accessed at any time to transfer into a suitable pension arrangement, support any changes to personal or family circumstances or perhaps help with the costs of future house moves."

Forbes agrees, saying Nicola would be better contributing to an ISA rather than a pension until she becomes a higher rate tax payer. "Under the present tax rules she would gain twice the tax relief when she is a higher tax rate payer in a couple of years' time," he explains.

"Nicola has taken a realistic view on her likely retirement age of 68, which gives her 40 years to set aside sufficient funds to support her through retirement," says Brunning. "Her target is a net annual income equivalent to £25,000 in today's terms. If we assume inflation at a steady four per cent, then her target incomes becomes £144,000, needing a pension fund of £2.9m at current annuity rates. Essentially, she needs to start contributing as soon as possible."

For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email wealthcheck@independent.co.uk

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

general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Trainee Consultant - Surrey/ South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before