Wealth Check: 'When will I be in a position to start a family?'

Melanie Thomas, 26, a quality assurance officer from Leeds, is getting married in April, and her financial hopes are pinned on having enough money for the big day, the honeymoon and eventually a family. "I'm aiming to save £1,000 more for the wedding, £4,000 for a Caribbean cruise or a trip to Japan and £10,000 for when we start a family," she says. Melanie's financial situation is in good shape, but it doesn't mean she's worry-free. Alongside these ambitious savings hopes, she is "concerned about being able to afford to have a family, pay the mortgage and work part-time all at the same time."

Case notes

Salary: Melanie earns around £25,000-£30,000 a year.
Monthly outgoings: She pays £400 in tax and NI contributions, and spends around £1,300 on living expenses. She saves £200 a month.
Savings: Melanie has an individual savings account worth £1,300, a joint account worth £4,500 and three company share savings plans.
Mortgage: Variable rate with Halifax that has 22.5 years to run.
Debts: £0.
Pension: £180 a month.

Three independent financial advisers offer Melanie their help this week: Anna Sofat of Addidi, Steve Laird of Carrington Wealth Management and Dennis Hall of Yellowtail Financial Planning...

Savings

Melanie's savings goals are extensive, but she already has the groundwork in place, and is consistently saving £200 a month, with an £80 buffer between her income and outgoings every month.

Her short- and medium-term goals are easily achievable with her current saving plan. "Melanie wants to save a further £1,000 for her wedding and around £4,000 for a decent holiday, which can be achieved by the couple each saving £166 a month," says Steve Laird. "After the wedding, the money can be put towards the holiday, which they may be able to take next year.

But their longer-term aim to save £10,000 by 2014 in preparation for starting a family is a little more challenging. They would have to find around £330 each on top of their existing savings commitments, and it won't last long once children come along. "The average cost of raising a child to 21 can be as high as £186,000, so Melanie's goal seems a little misplaced," warns Dennis Hall. "A child doesn't mean a one-off cost. Instead, it's a constant, ever-increasing drain on household income.

"Anything Melanie and her partner can do beforehand to reduce their monthly expenditure will have a greater impact on their financial well-being rather than trying to put aside a lump sum. Overpaying the mortgage will reduce the percentage of their income going toward housing costs, for example." And in the current financial climate Melanie may also be able to renegotiate some of the costs for her wedding, putting the cash towards her other savings plans.

"Melanie has a share scheme as well as a small savings scheme, which she should review to see how much these contribute towards her £10,000 goal," suggests Anna Sofat. "She may also wish to consider setting up a regular saving of £100 a month since she will need to increase her current level of saving if she wants to meet her 2014 goals."

But the couple should also ensure that their cash savings are earning as much interest as possible and are sheltered from income tax. "Melanie and her partner can shelter £3,600 each every year in a cash ISA," says Sofat, "They can earn gross interest of as much as 3.5 per cent or 4 per cent fixed for 12 months from Birmingham Midshires.

"They can also get a competitive rate of interest if she commits to saving £20-£250 a month. Barclays are currently paying 5.8 per cent on its monthly saver."

Pension

Melanie isn't doing badly on the pension front either, which is rare for someone her age. "Based on her current level of earnings, service to date, assuming her salary increases by 2.5 per cent every year and a 7 per cent investment return, Melanie should be on target to achieve a retirement income of £20,000 in today's money, plus a tax-free lump sum," Laird notes. "If she takes time off to have a family and reduce her hours, this would have a detrimental effect on her pension pot. But there is enough scope to make up any shortfall without it being too expensive for her."

But Sofat warns that,as a cautious investor, Melanie needs to be aware of the risk associated with her pension savings. "As this is a money-purchase scheme, the investment returns could have a big impact on her eventual pension," she says. "Melanie should ensure that the pension funds she is invested in are reviewed regularly. Despite her cautious attitude to risk, at her age she should be thinking about mostly investing in equities."

Protection

Melanie is also ahead of the crowd when it comes to protecting her lifestyle. She has income protection, which will pay a proportion of her bills if she is unable to work through an injury or illness, until the point of retirement if necessary. She should review her payments, because at her age she could get an annual benefit of £19,500 to the age of 60 for £33.28 per month.

Meanwhile, her critical illness could also be regularly reviewed, and both Melanie and her partner should be clear about what their policies cover as the conditions included vary between policies.

For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS; or email wealthcheck@independent.co.uk