Joanna Lamb has quite a list of financial issues she'd like to resolve. Until relatively recently she was living with her parents, which enabled her to save £10,000 over the space of two years. Now she has moved into a shared flat in London, she has less spare cash, but still hopes to save £200 a month, but is unsure what to do with the money.
In addition, Joanna would like to buy her own flat, though she accepts this may not be realistic given her financial status. But does property represent a decent investment right now?
Another issue for Joanna is that she plans to study or work abroad over the next few years. She wants to know about savings plans, including pensions, into which she might be able to continue contributing while she's away. Pensions are a particular concern for her - she has no private provision and has missed several years worth of National Insurance contributions.
Joanna is keen to investigate private medical insurance policies. Is cover beyond her means, even if she opts for a policy that covers life-threatening diseases rather than everyday treatments?
We asked three independent financial advisers for their help: Anna Bowes, of AWD Chase De Vere; Daniel Clayden, of Clayden Associates; Danny Cox, of Hargreaves Lansdown.
Joanna Lamb, 26, charity worker, London
Income: £26,500 a year, or around £1,525 a month after tax.
Monthly spending: Saves what she can after spending on bills, gym, phone, travel and other general living expenses.
Property: Rents flat in south London at a cost of £525 a month.
Savings: around £10,000, held in mini cash ISA with Abbey.
Debts: £6,000 remaining of student loan balance.
Pension: No private savings. Three-year shortfall in National Insurance contributions.
Anna Bowes says Joanna has sensibly built up a cash sum for emergencies and that a tax efficient cash ISA is an excellent home for this money, as long as she earns as much interest as possible on the money. Kent Reliance Building Society currently offers 5.71 per cent a year, she points out.
The money will also make a decent deposit on a property, in time, so it's best left in cash, where it's readily accessible. As for longer-term investments, Bowes says some investment wrappers available in the UK are not appropriate if the investor is resident in other countries. For now, Bowes suggests looking at stock market investments for future savings, including well diversified global funds such as the M&G Managed Fund or a core UK fund such as Cazenove UK Growth & Income or Invesco Perpetual Income. Daniel Clayden says that Joanna will not be able to continue contributing to ISAs while she is living overseas, but her tax status will be protected.
Danny Cox says that she should think about her home as somewhere to live, rather than an investment, and he believes there is no obvious reason for the price rises to come to an end. Bowes' says that the key is to make sure mortgage repayments are affordable.
Clayden says that the earlier Joanna starts saving privately for old age, the more likely she is to be able to retire at 60. In the absence of a work scheme, he recommends a basic stakeholder pension. Cox also wants Joanna to start a stakeholder plan as she is missing out on tax relief. Bowes adds that a move abroad would complicate Joanna's pension savings. But it would be wise to start saving sooner rather than later.
Clayden says a budget private medical insurance plan that provides cover in the event the NHS cannot do so over a certain timescale might be worth a look. Axa and Norwich Union both offer these policies. Or, says Bowes, consider plans such as PruHealth, where you pay lower premiums if you lead a healthy lifestyle.
All the advisers also warn Joanna to be careful with insurance. In addition to private medical insurance, there is also permanent health insurance and critical illness insurance. These offer benefits in the event that the policyholder is diagnosed with a serious illness. Both may be worth considering, but Joanna needs to understand what she is buying.
See www.unbiased.co.uk to find an independent financial adviser in your area.
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