Wealth Check: 'We can't see a way to save more'

We give 'Independent on Sunday' readers a financial makeover

The patients

The patients

Owen and Claire Page from Reading, aged 32 and 42 respectively.

Job: Owen is a process controller for a drinks company and Claire runs her own public relations consultancy.
Joint income: around £40,000.
Savings: £3,000 in a savings account.
Investments: equity in Zed, Claire's company.
Goals: to get the family finances back on a level footing following a rise in their outgoings; to build up some savings; and to make provision for their retirement.

John Lawrence

The problem

The demands of bringing up two youngsters aged three and four weigh heavily on parents Claire and Owen Page, who struggle to balance their day-to-day outgoings with the need to provide for their own long-term future.

An accident suffered by Owen last year has stretched the family income further since he has been forced to reduce his workload. Claire now works full time to make up for this shortfall but has to meet short-term costs like childcare at £60 a day.

The couple have £3,000 in a savings account with Intelligent Finance, but they also have an £11,000 personal loan with the same lender.

Their outgoings include a £117,000 mortgage on their three-bedroom home - now worth £180,000.

At the end of a four-year fixed-rate deal with the Bank of Ireland at 4.95 per cent, they are about to move to a further one- year tie-in at the lender's standard variable rate - currently 6.84 per cent.

Claire also has a £1,000 loan with First Direct - whose typical annual percentage rate (APR) is 6.6 - and the couple owe nearly £6,000 on two credit cards with 0 per cent deals at Barclaycard and Sainsbury's.

Prospects for the long term are a worry because Claire has no pension provision at all.

Owen pays 3 per cent of his salary into a final salary scheme with his current employer and has a frozen Allied Domecq pension with a predicted £5,000 annual income on retirement at 65.

They have life insurance with Legal & General (L&G).

Interview by Esther Shaw

The cure

Owen and Claire must see if there is any area of expenditure where they can cut back, says Alex Pegley from independent financial adviser (IFA) Calculus.

As the owner of her company, Claire should also seek to offset as much tax as possible against her business expenses, says Jonathan Fry at IFA Jonathan Fry & Co.

Since they have to keep earning to support the family, he adds, they must review their protection arrangements.

Savings and debts

If the interest-free periods on the credit cards run out before they manage to pay them off, they should try to switch the balances to new 0 per cent deals. If they can't do this, says Mr Pegley, they could add these debts to their IF loan, which has a standard APR of around 8 per cent - against 16 per cent on the cards.

After this, they should focus on building up their savings in deposit accounts.

Drew Wotherspoon from IFA Charcol recommends they move their £3,000 to a better deal - such as an instant access individual savings account (ISA), where interest is tax-free.

Alliance & Leicester's direct ISA, for example, is currently paying 5.4 per cent, while Abbey's postal ISA pays 5.35 per cent.

Investments

Given that the couple want to save for their children, Mr Fry suggests equity-based investments might be appropriate because it is some time before they will turn 18.

He recommends a combination of tracker funds such as HSBC or L&G ,and multi-manager funds such as the Jupiter Merlin Growth fund.

Property

The couple will face a jump in repayments when they move to their lender's SVR, warns Mr Wotherspoon. But with redemption penalties of around £4,500, it is not worth moving the mortgage before the overhang period ends.

At the end of this extra year, Mr Fry says they should consider other mortgage prod- ucts to bring their loan on to a much more competitive rate.

Retirement

Owen is lucky to have a final salary pension scheme, says Mr Wotherspoon, who adds that he could make additional voluntary contributions when money is not so tight.

Claire should check her state pension by downloading form BR19 from the Inland Revenue website, says Mr Fry. She could then consider contributions to a personal pension. "Norwich Union and L&G offer competitive stakeholder-type plans."

Mr Pegley suggests that the couple could boost their retirement funding in the longer term through regular savings in equity ISAs.

Protection

Owen and Claire should review the level of life cover they need, says Mr Fry, and check their L&G policy conditions to see if any critical illness cover is included.

"The Pages are very reliant on their joint incomes at the moment," he explains. "Ideally they should be considering some form of income protection cover."

Owen should check the benefits offered by his company, adds Mr Pegley. "Many large employers offer life assurance of two to four times salary and replacement income of up to 75 per cent of salary."

Both Claire and Owen should also consider arranging wills, adds Mr Fry.

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