Wealth Check: Yesterday the world, tomorrow a house

Each week we give 'Independent on Sunday' readers a financial makeover

The problem

The problem

While taking a career break to travel the world, Beth Stubbs got engaged to her fiancé, Nick.

She is now keen to know how best to manage their money ahead of a frantic time: due to marry in May and go on honey- moon, they also have an eye on buying a property in the next few months.

Eighteen months ago, Beth sold her flat and made enough money to pay off all her debts and go on her travels with Nick.

They returned to the UK in August and have been watching the housing market ever since. They rent a three-bed home in Birmingham for £560 a month. "Nick also sold his house before we went travelling, so we have quite a big deposit," says Beth.

The couple hope to be able to buy on just one of their salaries so they will have some spare income to play with.

"We'd like to think about children at some stage. We want to make adequate financial provision so I can stay home and look after them."

She has a lot of cash put by, with £6,000 in a mini cash individual savings account (ISA) and £10,000 in a flexible savings account - both with Lloyds TSB.

Her stakeholder pension is worth around £2,000 but was frozen when she went travelling. Once she has been with her new employer for a year, she plans to start saving into a company scheme.

She has an Egg credit card she clears in full each month, and no other debts. She has no life insurance or income protection.

Interview by Esther Shaw

The cure

Given that Beth's financial goals are all short term, funds for these purposes should be kept in cash where there is no risk of them falling in value, says Patrick Connolly of independent financial adviser (IFA) John Scott & Partners.

He adds that if the couple's resources don't stretch quite far enough, they may have to delay any house purchase until after the wedding.

Beth needs to kickstart her pension provision, says Ben Yearsley of IFA Hargreaves Lansdown, though she has done well to rid herself of debt and build up savings.

Savings

While Lloyds TSB pays 4.9 per cent on the £6,000 she has in the mini cash ISA, Beth could look at Abbey's instant access ISA paying 5.35 per cent, says Vivienne Starkey of IFA Equal Partners. "But if she is going to use all this money for the house purchase or the wedding, it may not be worth the hassle of transferring the funds."

Beth should check she is getting the best deal possible from Lloyds TSB on her savings account. On balances of around £10,000, the bank is currently offering between 2.62 and 5 per cent on 10 different accounts; is she earning the most she can?

Property

"Using one salary to borrow for their home is a sensible [move] as it means they won't overstretch themselves," says Ms Starkey.

Assuming the couple get married before they buy and will be tightening their belts, they must ensure they are prepared for all the expenses of purchasing a property, she adds. "The overall costs include not only stamp duty and solicitors' fees, but removals and furnishings."

Any cash left over from the wedding to put towards a deposit should be stashed in an instant access mini cash ISA, says Mr Yearsley. "The more they can save, the less they will need to borrow when they buy a house."

He recommends they draw up a budget to help them work out where they could cut out expenditure in order to maximise savings.

Pension

As they are planning a family, Beth and Nick need to think about their longer-term finances, says Mr Yearsley. "Beth has no real retirement provision and should really be starting a new pension." She should look to save 14 per cent of her salary to make up for her slow start.

This is particularly important, says Ms Starkey, given that she wants to take another career break to have children. "Although in theory she can contribute to a pension when she is not working, she may not be able to afford to do so when the family is reliant on Nick's salary," she adds.

Mr Connolly advises Beth to see if she can move the cash in her stakeholder pension to her new company scheme.

Investment

Beth's priorities mean that until she has sorted out her home purchase, rebuilt her post-wedding savings and begun pension provision, it won't be worth investing in equities, says Mr Yearsley.

Protection

As the couple will be taking on a mortgage and are planning a family, Mr Yearsley recommends life assurance and critical illness cover.

Mr Connolly says Beth should check if any protection is offered by her firm.

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