Wealth Check: Trying to make ends meet is not child's play
Since the arrival of his twin boys, Miguel Cro has been struggling to save for the future. Our experts prescribe a solution
Sunday 14 October 2012
Miguel Cro doesn't want to worry about money, but has found it harder to budget day-to-day while saving for the future since the arrival of his twin boys.
The 26-year-old lives in Kenley, Surrey, with his wife, Leopoldina, and their sons, Daniel and Gabriel, now seven months. Miguel works as an executive assistant and takes home around £2,000 a month. At present, after paying for all the family's outgoings and bills, there is only around £200 left, although the family finances are due to get easier once Leopoldina goes back to work.
Miguel has managed to salt away a little money in savings and has an individual savings account (ISA) with Barclays and also an easy-access savings account.
"I have around £1,500 in each," says Miguel. "But I really want to save more and build up a bigger fund. We also want a nest egg for each of our boys, but are finding it hard with the costs of a young family."
Miguel is disciplined with his borrowing, and while he does have two credit cards, one with Capital One and one with Amex, he pays both of these off in full each month.
"I do not make pensions contributions, but my employer pays in 12 per cent of my annual salary," he adds.
The Cros live in a three-bedroom, semi-detached house in Surrey which they bought in December 2011 for £287,000.
They have a mortgage for £190,000 with Barclays/Woolwich on a repayment basis, currently on a fix.
Our panel of independent financial advisers (IFAs) agree that having children is a big life change, and can have a huge impact on finances. They warn Miguel that it may be particularly hard to find money to put aside when there is only one salary coming in. Nonetheless, they urge him not to ignore longer-term investing or, above all, financial protection.
Budget for a young family
Patrick Connolly from AWD Chase de Vere urges Miguel to plan the family finances as carefully as he can.
"Typically, family costs rise and income goes down, especially if one parent takes an extended parental break or childcare costs increase," he says. "I'd recommend keeping finances as flexible as possible so Miguel can adapt to whatever happens. This means that longer-term financial planning may temporarily need to be reduced."
Chris Wicks from Bridgewater Financial Services Limited recommends Miguel draw up a budget.
"That way he will know exactly what is coming in and going out," he says. "He may also be able to make further savings by shopping around for the best deals on his utility bills, insurance and borrowings."
Useful price comparison websites for this include Uswitch.com and Moneysupermarket.com.
Build up savings
The best way for Miguel to keep his finances flexible is to build up cash savings, according to Mr Connolly.
"Miguel has built up some savings and has been sensible in using his cash ISA allowance as returns are tax-free," he says.
Nick Evans from One Life Wealth Planning adds that Miguel can help boost returns by making full use of his cash ISA allowance.
"Savings returns are modest, so he should stick with secure, deposit-based accounts until he has built up a reasonable emergency fund."
Miguel should also find out the rates he is getting on his money.
"If these aren't competitive, he should move his money elsewhere," says Mr Connolly.
"The best, instant-access cash ISA accounts are currently paying around 3 per cent."
Review the mortgage
Mr Connolly urges Miguel to check the details of his mortgage deal to ensure it is competitive.
"He should compare it with other fixed-rate products currently available," he says. "It is likely that his best option will be to leave his existing mortgage where it is until the fixed term expires at least, but he should double-check that this is the case."
Don't ignore pension saving
Miguel is in the fortunate position of having an employer who is paying 12 per cent of his salary into his pension scheme.
"He is benefiting from very generous contributions," says Mr Evans. but adds that this doesn't mean Miguel should neglect his pension or other long-term savings.
Mr Connolly says the couple should review how much disposable income they will have once Leopoldina goes back to work, and look to invest more for the longer-term.
When the couple are able to, Mr Connolly recommends they find out whether they can make further pension contributions. "It is often best to do this through your employers as charges are usually competitive," he says.
Mr Wicks also suggests Miguel and his wife obtain state pension forecasts to see how much they can expect – and when.
Consider other longer-term savings products
In addition to pensions, Miguel should also consider long-term savings into stocks and shares Isas, says Mr Connolly.
"Pensions offer initial tax relief but aren't particularly flexible, whereas stocks and shares Isas can also be tax efficient but provide much greater flexibility and access to your money," he says.
"For most people a combination of pensions and Isas is the best way to save for the long term."
Put protection in place
"Miguel should find out if his employer provides any form of life assurance or income protection, and if his wife has any cover from her employer," says Mr Connolly.
"He must then look to make up any shortfall himself. It should be possible to get joint life cover of £250,000 over a 20-year period for around £15 each month."
Mr Wicks also urges Miguel to draw up a will.
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