The problem:: Stretching the cash to enjoy family life
With three young children, Tim and Adrienne Routledge are keen to build up their savings while also making the most of family life.
Tim, 43, works as a relationship manager in the charities division of an investment bank while Adrienne, 40, is a director of a public relations firm. Their combined take-home pay is roughly £100,000.
"We both work hard and enjoy having regular family day outings, which are expensive with five of us," says Adrienne. "We also hope to go to Cyprus for our family holiday next year, which will cost around £8,000, and have plans to spend £20,000 on home improvements over the next 12 months."
The couple have an array of savings plans in place for their three children: Steph- anie, eight, Charlotte, six, and Sam, two-and-a-half. They have £20,000 in Nationwide Smart accounts at 5.45 per cent, and £6,000 in premium bonds.
They pay £25 a month into a child trust fund with Nationwide building society for Sam, earning 6.55 per cent interest, and £25 a month into equity individual savings accounts (ISAs) with Nationwide for the other two children.
Tim and Adrienne also put £200 a year apiece into three tax-efficient friendly-society savings plans for each child, one with Family Assurance and two with Engage Mutual Assurance.
Other savings and investments include £7,000 in premium bonds for Tim and Adrienne themselves; £12,000 in cash ISAs split between the Halifax at 5.3 per cent and Portman building society at 5.25 per cent; and £5,000 in individual shares, including companies such as Barclays bank.
The couple have a 25-year £160,000 repayment mortgage on a two-year fixed rate with Nationwide at 4.39 per cent. They bought their four-bed house in Beckenham, Kent, for £465,000 in September 2005 and it is now worth £600,000.
They have had the mortgage for 18 months and overpay by around £500 a month, as their deal allows them to do without penalty.
The couple also own a one-bed flat in Beckenham, worth £180,000, which they rent out for £650 a month. They have a buy-to-let mortgage on this property for £130,000, and are on a five-year fix at 5.34 per cent with National Counties building society.
"The flat actually costs us about £100 a month," says Adrienne, "but we've taken this on as a very long-term investment."
Adrienne has a personal pension with Friends Provident and pays in £230 a month, while Tim contributes 6 per cent to his company scheme.
The couple pay £110 a month for £100,000 worth of life and critical illness cover with insurer Swiss Re.
The cure: Life cover is the one flaw in your plans
With a substantial income, equity in their property, savings and surplus cash, Tim and Adrienne are in a sound financial position, agree our panel of independent financial advisers (IFAs). "But they do need to address their protection needs, as this is a vital part of financial planning with a young family," says Keith Church- ouse of IFA Churchouse Financial Planning.
Tim and Adrienne have a decent spread of investments and make the most of tax-free ISAs.
To find cash for their planned trips and home improvements, they could reduce the sum held in premium bonds, says Alison Roberts of IFA Pi Financial Dixon Sutcliffe & Co. "The overall odds of winning any prize with a single bond are 24,000 to one."
Since Portman is to merge with Nationwide later this year, the couple should check if they are in line to receive a cash windfall of between £200 and £1,000 for holding an ISA with the society, says Mr Churchouse.
As for their shares, holding equities in individual companies rather than in unit trust funds means they aren't spreading their risk, warns James Norton of IFA Evolve Financial Planning. He recommends they sell these and put the proceeds in an investment fund such as a stocks and shares ISA.
Under current rules, it is possible to contribute up to £7,000 each tax year to a "maxi" equity ISA. Alternatively, they could invest £3,000 in a cash ISA and £4,000 in stocks and shares.
Tim and Adrienne should continue making overpayments when possible to erode their mortgage debt.
Well in advance of the end of their current two-year fix, they should check what other deals are available - and then switch if they find a better one, depending on what fees are involved in doing so.
Otherwise they risk slipping on to the lender's standard variable rate (SVR), which is likely to mean a hefty increase in their repayments given the climate of rising interest rates.
The buy-to-let property is a comparatively risky investment, says Mr Norton. "They already have substantial exposure to this asset class through their main home, and are relying on price rises to recoup their losses."
Adrienne and Tim should regularly review their pension plans' charges and performance, advises Ms Roberts, to ensure they are getting the most from their retirement funds. In particular, Tim should take full advantage of being able to make additional voluntary contributions (AVCs) through his employer's pension scheme, as these are especially beneficial for higher-rate taxpayers.
As a priority, the couple must review their life insurance, warn the advisers. With three children, the financial impact of one or both parents dying would be huge. Their current £100,000 worth would not be "anywhere near enough" to cover the mortgage or the childcare and living expenses, says Mr Churchouse.
The couple should add all these costs together and calculate the shortfall between the total and the protection they have in place at the moment.
Both should then see if any extra cover is offered by their companies, and make good the difference. "Many employers offer 'death in service' cover of four times salary," says Mr Norton.
A simple term assurance policy should cost as little as £21 a month for £100,000 of cover over 18 years on a joint life basis. This should be written in trust to avoid inheritance tax.
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