Steve cannot wait to get away for his next holiday. In two weeks, he is off to Mozambique with his wife Sue for an extended safari, exploring out-of-the-way places. Holidays are a major priority for Steve and Sue but he also realises the importance of securing his financial future.
They live in a small maisonette with a mortgage of pounds 20,000 and want purchase a larger property soon. Steve has a company pension and two small frozen pensions, plus investments in building society accounts. His main investment is Exeter Investment Group, an Alternative Investment Market (AIM) stock.
The Adviser: Tim Cockerill, managing director of White- church Securities Limited, an independent financial adviser in Bristol. Phone 0117 944 2266.
The Advice: Steve wants to buy the new home while renting out the small maisonette for pounds 400 per month to cover mortgage, agency fees, upkeep and taxation. Sue, a chiropodist, is a basic rate taxpayer and the rental income should be paid to her for tax purposes.
Finding a suitable mortgage can be daunting. Estate agents are happy to help because they rake in commission, so if you take that type of advice the mortgage you end up with is unlikely to be based on a proper assessment of your financial circumstances.
Steve and Sue should look at a flexible mortgage and Virgin seem to offering the best going. This mortgage account can operate like a current account, which would mean Steve and Sue could pay their wages into the account and this would immediately reduce the outstanding mortgage loan.
Because interest is calculated daily they would pay less of it. They can also use the account in the normal way to pay bills. As they do, so the outstanding loan increases again. The great advantage to this account is that you can have all your money working for you, reducing the burden your mortgage payments.
Steve calls himself a cautious investor, but his investment in the AIM stock is high-risk and he should consider diversifying. The big problem with holding an individual stock is that if their business plans don't work out, the share price can be hit badly, all the more so with an AIM stock which is higher risk.
He could diversify into a unit trust, held in an Individual Savings Account (ISA) to make sure the capital growth is tax free and he gets tax credits on any income. There are many suitable funds available for this, such as Fidelity Special Situations or Jupiter Income.
Steve is in his company's pension scheme. They pay 6 per cent and Steve pays 8 per cent. He has been in it for only a short time and he hopes, as would anyone, that over the years the contributions will grow and so will the fund. The pension is managed by Sun Life and Steve has control over where his premiums are invested. He has chosen to invest 30 per cent into their Managed Fund, 30 per cent in the UK, 20 per cent in Europe and 20 per cent in Asia.
The drawback to many modern pension schemes is that they are "money purchase". This means an individual puts money into a pension, but learns how much he or she will get only when they reach retirement age.
The value of the pension fund fluctuates according to stockmarket values. Steve, who has many years to go before retirement should consider a higher risk, the objective being to make the pension fund grow as much as possible. Steve might also wish to consider reallocating his premiums.
Finally, their plans should ensure that they can still go on holiday to places such as Mozambique. The whole point of financial planning is to enable you to do what you want to do.
For Steve and Sue, I don't think two weeks sitting on the beach at Bournemouth is quite their cup of tea.