Wealth Check: 'We have a good income but we always spend it'

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kim and Chris Moore face a challenge that will be familiar to many couples: how to make their money go further at the same time as supporting a growing family. They are living month to month and have to use their overdrafts; they also have no savings.

kim and Chris Moore face a challenge that will be familiar to many couples: how to make their money go further at the same time as supporting a growing family. They are living month to month and have to use their overdrafts; they also have no savings.

The couple have a two-year old son, Hugh, and would like to have a second baby. Although Mr Moore has a well-paid job in the City, Mrs Moore took on a less senior position in the marketing department of a software house after Hugh was born. She works four days a week, but feels under-challenged and would like to start doing contract marketing work from home.

The Moores love entertaining and would like to start a business in the hospitality sector, but feel their debts stand in the way of their plans.

We put her case to Patrick Connolly, at John Scott & Partners, Paul Willans, at Blick Rothenberg, and Matthew Morris, at Rickman Tooze

KIM MOORE, MARKETING EXECUTIVE

Education: Kim, 33, Bachelor of Commerce from the University of Alberta, Canada; Her husband Chris, 39, started work after A-levels

Salary: joint income £85,000

Debt: Credit card debt £10,000; loans £51,000.

Property: Mortgage of £220,000 with Alliance and Leicester (3,2,1 mortgage).

Savings: None

Investments: None

Pension: Kim & Chris are members of work pensions

Outgoings: Fixed expenses £3,000. Food shopping £800. Holidays £3,000 per year

DEBTS

Mr Connolly says the Moores simply have too much debt: all told they owe £61,000 in loans and credit cards. The couple are also paying too much interest: given their incomes, they should be able to move their borrowing to cheaper deals.

Mr Connolly suggests moving some of the debt to their mortgage, as this is usually the cheapest way to borrow. However, they may not have enough equity in their house to transfer all their borrowings in this way. Assuming there are no penalties for switching, they should move any money that cannot go on to the mortgage to a consolidation loan, or to a credit card with a 0 per cent deal.

Mr Willans suggests a three-step approach: transferring £10,000 to a 0 per cent credit card (such as Bank of Scotland, which charges no interest for the first nine months and then 9.9 per cent), £25,000 to an unsecured loan and the rest to a secured lender. Nationwide building society charges 6.6 per cent for such a loan.

BUDGETING

Mr Willans cautions that the debt interest means the Moores are living beyond their means. He says that a budgeting exercise cannot be avoided. Creating a budget and sticking to it is the key, even if that means camping rather than luxury holidays. Mr Connolly cautions that without cutting outgoings it will be hard for the couple to cover the additional costs of a second child, let alone their longer-term plans.

Mr Morris recommends that once the Moores have undertaken a full analysis of their income and spending they should aim at a surplus of £500 a month. They should not borrow any more until they have cleared their existing debts.

PENSION

The Moores are both paying into workplace pension schemes, so their retirement planning is relatively well catered for. Given the pressures on their current finances, paying extra into a retirement fund may not be a realistic option for now.

However, Mr Morris warns that Mr Moore is only 20 years from a typical retirement age. Once the couple have cleared their debts, their priority should be to set aside extra money for retirement, as even work-related pensions are not as secure as they once were.

SAVINGS AND PROTECTION

Although money is tight, the Moores should think about setting up a cash reserve, says Mr Willans. Ideally this should be three times their joint monthly salary, after tax. They may never need to draw on this, but it will provide an invaluable cushion for any change in circumstances, such as sickness or redundancy.

Mr Willans also recommends that the couple insure their loan repayments against sickness or unemployment. If finances do not allow them to cover the whole amount, they should cover what they can, perhaps for a period of 10 years. They should also check what, if any, insurance is offered through their employers.

SETTING UP BUSINESS

At the moment, the priority for the Moores has to be cutting their debt burden. If Mrs Moore were to reduce her working hours, or give up employment to start a business, it would make servicing the debt that much harder. Mr Connolly says that if the Moores focus their attention on putting their finances on a more secure footing, they will then be in a better position to set up a business in the future.

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