Wealth Check: Spender Ryan needs to curb his instincts and build up savings

Our experts urge the 20-year-old to start putting money aside to afford the gadgets he wants, and, in the longer-term, a home of his own

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The Independent Online

The patient

Ryan Cavalier is keen to start saving more, both for the shorter term so he can treat himself to some of the gadgets he wants to buy, and for the medium term, so he can take the first step onto the property ladder.

The 20-year-old lives in Basildon, Essex, and works as a trainee administrator for a housing association.

Ryan currently takes home around £1,100 a month.

"As part of my apprenticeship at the housing association, I'm also studying business administration on a level three course alongside my job," he says. "This is government funded and will last 12-18 months."

To manage his money, Ryan has a current account with Lloyds and a savings account with Barclays.

"My monthly earnings go into the Lloyds account, and then I try and transfer up to £150 into my savings account – although I don't always manage this," he says. "At the moment, I only have around £100 in savings, as I'm more of a spender. But I'd like to build my pot so I can buy a newer TV and a PlayStation 3."

Since March 2012, Ryan has rented a one-bedroom, ground-floor flat through his local council. He pays around £300 a month in rent and another £300 a month for his other household bills.

"I'd love to own my own home one day, but it's the deposit that's the tricky part – plus all the other costs," he says. "Even thinking about owning is hard when I'm not very good at saving. That said, my aim is to either buy my current place, or another similar flat in Essex, within the next five years. I wouldn't get any parental help, so would need to work hard to buy on my own – or maybe with a partner."

The only debt Ryan has is a credit card with Vanquis.

"I have this card because I wanted to build my credit score to make it easier to borrow in the future," he says. "This was one of the few cards I could get accepted for given my age and financial position, and I received £40 cashback when I applied, as I signed up via Topcashback. However, the interest rate is very high."

While Ryan aims to pay it off in full each month, he doesn't always manage this, but does try and ensure he's always paid the minimum.

At present, he has no money in investments, no pension, and no protection policies in place.

The cure

Our panel of advisers agree Ryan's biggest stumbling block is that he's a spender, not a saver. They recommend he builds up his savings pot as a priority so he can put an emergency fund in place, and then have money available to purchase the gadgets he wants to buy. Having done this, Ryan can then start planning ahead to buy a home in a few years' time, but our advisers urge him to be patient. In addition, they remind him not to ignore pension planning and the need for protection.

Put an emergency fund in place

As a starting point, Ryan needs to ensure he has a lump sum of money readily available in a cash account as a safety net in the event of an emergency, according to Lisa Conway-Hughes from Westminster Wealth.

"Ideally, he should look to amass around three times his take-home monthly income," she says.

The best home for a rainy-day fund is a high-paying, easy-access cash account or cash individual savings account (Isa) where returns are tax-free.

Once Ryan has a rainy-day fund squirelled away, he could continue to save into this account to achieve his short-term goals, such as buying the gadgets he wants, according to Anna Sofat from Adidi Wealth.

"Ryan should check he's getting the best rates he can on his savings to ensure this money is working as hard as possible," she says.

Useful sites for comparing savings rates include Moneyfacts.co.uk and Savingschampion.co.uk.

Budget carefully

Adrian Lowcock from Hargreaves Lansdown suggests drawing up a budget could help.

"This will enable him to see where he can make further savings," he says. "He should then keep the excess-spending money separate to avoid overspending. He's already made the financially savvy decision to use cashback sites when making purchases, so should continue to do so, as this will help his money go much further."

Mr Lowcock adds that if Ryan is struggling to save £150 a month, he could consider dropping this to £100.

"I'd also suggest Ryan looks to sets up a direct debit so the money goes straight into his savings account on payday – so he won't even miss the money," he says.

Ms Conway-Hughes suggests Ryan should review his outgoings to see if he can reduce the premium he pays for bills such as gas, electricity, broadband and his home insurance.

Useful sites include Uswitch.com and Moneysupermarket.com.

Plan ahead to buy a property

To make it easier to achieve his different objectives, Mr Lowcock suggests Ryan could also consider putting half his money into a high-paying cash Isa, and half into a separate stocks-and-shares Isa.

"Having an equity Isa would make it harder for him to dip into his savings, and he could start saving from as little as £50 a month," he says.

Ms Sofat suggests Ryan could look into the Government's new Help to Buy scheme as this requires a deposit of just 5 per cent.

Ms Conway-Hughes points out that as the rules stand, Ryan will be eligible to buy his property under the "Right to Buy" scheme in March 2017.

Building a credit score

Our advisers agree that while Ryan is right in thinking that having a credit card will improve his overall credit rating, they question whether the Vanquis card is the best option.

"Getting a mortgage can be very challenging without a credit record, but this may not be an immediate concern," says Lowcock. "It may be worth cancelling the card to avoid any risk of getting into serious debt."

If Ryan is set on maintaining and improving his credit score, Ms Conway-Hughes suggests he should ensure he doesn't miss any bill or card payments, and should get registered on the electoral role.

"It's also worth checking credit records through a firm such as Experian or Equifax," she adds.

Start pension saving while young

Ms Sofat urges him to start saving for his retirement as soon as possible.

"He could look to do this either via an Isa or a pension," she says.

Ms Conway-Hughes adds that if there is an occupational pension scheme in place at his work, Ryan should look to join this.

"Equally, as part of a new scheme being rolled out called auto-enrolment, all companies with eligible employees will have to start providing – and contributing to – a pension scheme by a specified date," she says.

Don't ignore protection

Ms Sofat says that while establishing a rainy-day fund is a priority, Ryan should at least consider some form of income protection.

"This is designed to pay a percentage of his monthly income tax-free in the event he is unable to work due to long-term injury or illness," she says.

"This will become more important when Ryan buys a property and takes on a mortgage.

"And if he ends up buying with a partner, he may want to consider life insurance and critical-illness cover which would pay out in the event of his death or a serious illness."

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