For the past three months Toby Allen has worked as an assistant producer at a games development company in Sheffield. Toby shares a rented flat and owns a seven-year-old Ford Fiesta, which he says he needs to replace. His current salary is £22,000 a year and his monthly outgoings approximately total £730 - not least because the old car is expensive to run.
Toby may have to borrow to pay for a new car and he is hoping to study for an MBA in the future, but he would need to find £20,000 to fund the course. That could be a problem as he has no savings to speak of.
Toby wants to start saving £100 a month using a cash individual savings account (ISA). He is also interested in investing small amounts on the stock market. But what should his priorities be?
We asked three independent financial advisers for their help: Jonathan Fry, of Jonathan Fry & Co; Philippa Gee, of Torquil Clark; and Suzanne Cox, of Carterbar.
Case notes: Toby Allen, 21, games developer, Sheffield
Income: £22,000 a year, the equivalent of £1,275 a month after tax.
Monthly spending: Around £730, with essentials including rent, petrol, car repairs, other travel, bills and food.
Property: Shares a rented flat.
Debt: None at the moment, although Toby is considering borrowing £10,000 to buy a new car and may need to find £20,000 for an MBA.
Savings: None, but is hoping to start saving £100 a month in an ISA.
Toby needs to build up some short-term savings for emergencies, in a fund that's easily accessible, says Suzanne Cox, who recommends getting together at least three months' salary.
Jonathan Fry suggests accounts such as Birmingham Midshires' Internet Easy Access 6 account, which is operated online and pays 5.2 per cent annual interest (although this includes a temporary bonus of 0.65 per cent payable for 12 months). Alternatively, ING Direct's Savings Account pays 4.65 per cent and the rate is not dependent on bonuses or offers.
Toby's plan to consider cash ISAs for his £100 a month is a good one, the advisers say. These plans are tax-free savings account into which contributions of £3,000 a year are allowed. Fry suggests Yorkshire Building Society, which offers an internet-only cash ISA paying 5.15 per cent a year, or Halifax Bank, paying 5 per cent.
Philippa Gee believes Toby needs to examine his outgoings to see where savings could be made. By keeping a diary of his spending, he can work out where his money is going. Setting himself a fixed budget for each week will also help him save money. Those steps taken, Gee says Toby will be surprised how much he can save from shopping around for services such as home insurance and utilities.
Toby's £20,000 MBA is a potentially large liability and the advisers suggest he looks into whether his employer may be in a position to offer sponsorship.
Cox says that even with a cash ISA open, Toby would still be able to open a stocks and shares ISA if he is serious about the stock market, with a contribution limit of £4,000 a year. An account with Fidelity Funds Network is a good idea, she suggests, as it offers access to the majority of investment managers.
Fry suggests Fidelity's Moneybuilder Balanced as a good first option - it is an actively-managed fund that invests across a range of companies as well as holding about 35 per cent of assets in fixed-interest investments for diversification benefits. The a minimum investment is £50 a month.
Even though Toby has no financial dependents or debts he would still be wise to look into some form of income protection, the advisers warn. His lack of savings leaves him vulnerable if he is unable to work due to a period of long-term sickness.
The first step is to check with his employer what provision exists there. Insurance will become more important if he takes out a car loan, although the advisers are concerned that borrowing may not be the best bet for Toby right now.
Toby has to be realistic about his retirement provision must start to save as soon as possible. Gee wants Toby to speak to his employer about what pension arrangements it has in place. Since October 2001 all companies with five or more staff that do not have a pension scheme are required to provide access to a stakeholder plan. Toby says he could afford to contribute around £50 a month, in which case a stakeholder plan would probably represent the most appropriate solution.
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