Wealth Check: Too many dreams to live for the moment

Each week we give 'IoS' readers a financial makeover

The problem

The problem

Legal assistant Catherine Crow- ther has a lot of ambitions - and a lot of financial requirements.

She is studying part-time to become a solicitor, with financial help from her parents - a loan she plans to pay back when she qualifies in a couple of years. Ahead of this, she wants to travel and to buy a second property outside London, while renting out her Bermondsey flat.

She also dreams of owning a new car but is unsure how to go about making financial provision for all these plans.

She pays £20 into a Nationwide mini cash individual savings account (ISA) each month, but admits she dips into it for "unforeseen expenses".

She also has shares in a drugs group but doesn't plan to sell up.

Catherine bought her one-bed home two and a half years ago for £118,000, and recently had it valued at £140,000. With a large deposit, she took out a repayment mortgage with the Halifax for £68,000, fixed at 6.5 per cent until October 2006.

She has both life insurance and income protection but has not started paying into a pension. "I'm more concerned with living for the present."

She has £1,800 left to repay on a £3,000 student loan and owes money on Egg and Virgin credit cards. "I'm making only the minimum repayments but plan to pay them off with a lump sum."

Interview by Esther Shaw

The cure

Given Catherine's plans, her priority should be to put more money away, says Anna Sofat at independent financial adviser (IFA) Destini Fiona Price. "She says she likes to live for the moment, but unless she saves more she will be restricting the choices available for her future."

Property

This might not be the right time to switch to a better mortgage, says Matt Pitcher at IFA Towry Law. "There are rates of 5 per cent on offer, but if Catherine remortgages now, her redemption penalties may well outweigh the savings she would make by transferring," he warns. He urges her to wait until the fixed-rate term ends in 2006.

Ms Sofat says these repayment savings could then be used to pay off her credit cards and fund part of her travel plans.

Debts

"She is trying to save up a lump sum to clear the cards, but while her savings will be earning interest at 4 to 5 per cent, the plastic will be accruing interest at a much higher rate," warns Mr Pitcher.

Catherine should transfer her outstanding balances to a rival card offering a 0 per cent deal.

Investments

Compared with a unit trust, investing in single-company shares carries a high risk, warns Jock Cassidy at IFA Ashley Law. If Catherine cashed in some of her shares instead, she could also repay her card debt.

Savings

Catherine could switch the money in her Nationwide mini cash ISA, paying 4.85 per cent, to a more competitive account such as Abbey's. This offers 5.35 per cent, says Ms Sofat.

Pension

"By not joining her company pension scheme, she is essentially refusing free money from her employer," says Mr Pitcher.

Protection

She could make some savings by abandoning the life insurance, says Mr Cassidy, as she is single and has no dependants.

If you would like a financial makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@independent.co.uk