Wealth Check: The teacher whose sums don't add up

We give 'Independent on Sunday' readers a financial makeover

The problem

The problem

Fresh from more than four years teaching in Tanzania, Michael Willis is making do with sporadic work, and cash, as a supply teacher in Leeds until starting full-time at a secondary school in Watford later this year.

"Cashflow is so unpredictable, with work one day but not the next," he says. "Not getting paid in the holidays makes it even more difficult to budget."

A busy social life is not helping. "I need to manage money better. Everybody else seems to have more income than me."

Although his finances are fully stretched, he does have some savings: £500 in premium bonds and £600 for emergencies in a Lloyds TSB mini cash individual savings account (ISA). But with no supply teaching work over Easter, Michael is already having to dip into the ISA fund to pay his bills.

Renting since December at £350 a month, he anticipates higher living and accommodation costs when he moves south for the new job.

Once settled, he wants to buy a home - although he doesn't know how: "Even [saving] a deposit of just 5 per cent seems like an impossible task."

He plans to join the teachers' superannuation (pension) scheme in September as, earning only £7,000 a year overseas, he hasn't managed to save anything so far for retirement. He repays £85 a month to chip away at £4,000 of student loans, but has neither an overdraft nor credit card debt.

Interview by Esther Shaw

The patient

Michael Willis, 32, from Leeds.

Job: teacher.

Income: currently £300 to £400 weekly for supply work; full-time salary from September, £28,000.

Savings: £500 in premium bonds; £600 in a mini cash individual savings account.

Investments: none.

Goal: to achieve greater financial stability and build up a house deposit.

The cure

A dose of savings discipline is needed, urges Drew Wotherspoon from independent financial adviser (IFA) Charcol - especially over the summer holidays.

It might be a back-to- basics approach but painstakingly drawing up a budget will show where Michael overspends, says Anna Bowes from IFA Chase de Vere.

Mike Pendergast from IFA The One Group says: "Looking at his earnings and outgoings, his net surplus income after rent is £1,000 to £1,400 [a month]. This is more than many households have - he is clearly going out too much."

Savings

Come September, Michael's costs are going to rise. So if he is serious about saving, now is the time to do it, recommends Ms Bowes.

Michael should try to build on his emergency fund, currently earning 3.9 per cent in Lloyds TSB's mini cash ISA, says Mr Wotherspoon. He should aim for three months' salary and, to earn a better tax-free rate, could switch the money to a First Direct ISA paying 5.28 per cent.

At the same time, he could impose extra discipline on himself by saving separately into an account where customers are penalised if they make too many withdrawals. HSBC's regular saver account offers 8 per cent, says Ms Bowes, but you must also set up a current account with the bank.

Investments

An equity ISA would reinforce that discipline, says Mr Pendergast, as to be in with a chance of decent returns, Michael wouldn't be able to touch the money for at least five years. As little as £20 a month can be invested and then, if Michael can wait that long, put towards a house deposit.

Property

Would-be homebuyers without a recent track record in full-time work usually find it hard to secure a mortgage - although lenders such as Northern Rock or Nationwide may be more flexible. In Michael's case, however, he should qualify for the "key worker" housing scheme. This offers an interest-free loan (for full-time teachers) repayable only on moving home or if he stops being a key worker. The repayable sum goes up in line with any rise in the property's value.

Based on future earnings of £28,000 a year, Michael could secure a mortgage of around £100,000 using an income multiple of 3.5, says Mr Wotherspoon. On these figures, he would probably be granted a £10,000 key-worker loan, enabling him to buy a property worth £110,000.

However, he may not find much for that price in Watford, so saving up for a bigger deposit will be worthwhile.

Ms Bowes suggests a "guarantor" mortgage, with a parent agreeing to cover the repayments in the event of financial problems. This will let him borrow more.

Retirement

Michael is right to join the inflation-proof, final-salary, teachers' superannuation scheme, says Mr Wotherspoon. At 32, he needs to get some cash into this plan to ensure a comfortable retirement.

And with gaps in his pension provision, he might want to make additional voluntary contributions, says Ms Bowes. Here, he has a choice of Prudential's AVCs (a long-standing arrangement for teachers) and other specialist deals now offered by rival insurers. He could also consider buying "added years" to make up for his time overseas.

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