- Find a higher paying savings account
- Cut your gas and electricity bills
- Tax-free savings
Joe and Vicky – Starting out
Joe and Vicky met at university in Bristol seven years ago this September.
Now aged 26, they have made Bristol their home and admit to being lucky to be in secure employment during the recession. Joe works in financial services and Vicky is a chartered surveyor.
“We plan to work our way up through our companies, build a property and investment portfolio. We’d like to save more and invest a bit more, but we have a pretty comfortable standard of living, especially compared to our parents at the same stage of life.”
After tax, Joe and Vicky take home about £3k a month. Joe has a £10k student loan which he is repaying at 9% of his income. “We are lucky to both have had support from our parents who helped us through university as well as onto the housing ladder.”
Joe and Vicky are worried that when interest rates rise again their financial position will change for the worse.
Joe has around £1,000 invested in a stocks and shares ISA with Legal and General and Vicky has £2,500 in a cash ISA with Nationwide. Vicky also has a small share dealing account with HSBC that enables a spot of speculation every now and again.
Both are member of their employer’s pension schemes. Vicky would like to be retired by 50 but Joe thinks that he will probably need to keep working until age 65.
“I think with some good financial planning and some shrewd investments there is no reason why we can’t retire early,” said Joe.
While Joe and Vicky are taking positive steps towards a secure financial future, many consumers in Britain risk not achieving what they really want from life as a result of their failure to plan ahead.
Financial Planning Week will be held from 7-13 September to help consumers to take simple steps themselves towards getting more financially “fit”.
Financial advice expert Danny Cox, CFP at Hargreaves Lansdown, said: “Overall Joe and Vicky are in a very good position for their age compared to their peers."
"They are in good jobs, have taken the first step onto the property ladder and have kept their borrowing under control."
“Not everyone is so fortunate though. It’s great that Financial Planning Week, being run by the Institute of Financial Planning, is looking to help other people like Joe and Vicky to get their financial plans in order, and there are lots of useful tips on www.financialplanningweek.org.uk to get them started."
“Joe and Vicky should check the other benefits offered by their employers. Larger companies often provide employees with life insurance and sickness protection benefits as well as pensions. Certainly they should have sufficient life insurance to pay off their mortgage should either die and a mortgage protection plan would cost just a few pounds a month. They should also consider income protection insurance. This is designed to provide a replacement income should either be unable to work long term, due to illness or accident. Any insurance policy they consider should take into account the benefits their employer’s would pay.”
“The key concern for Joe and Vicky is their mortgage. When interest rates rise, their repayments will also rise – for every 1% that interest rates rise, their monthly mortgage payments will increase by £100."
“Joe and Vicky should consider fixing their mortgage at some stage over the next six to 12 months. Fixed rate mortgages ensure that monthly payments don’t rise into the realms of the unaffordable, but in the short term will be more expensive than the 1.49% they are currently paying."
“While times are good and Joe and Vicky are feeling comfortable, they should set themselves a monthly target for savings and securing their futures. This should broadly be based on the amount they are saving on their mortgage payments. It is very easy to spend additional disposable income and a written budget or plan will help to focus their minds. Joe and Vicky should also pay themselves first, that is to say, have their savings paid from their accounts at the start of the month not the end, by which time there might be nothing left."
“The bedrock of any portfolio is a health cash cushion and Joe and Vicky need a larger emergency fund to stop them using expensive credit cards. Ideally they should build around 6 months expenditure as a minimum."
“They could also consider repaying the student loan at a faster rate – the interest rate might be low or even zero now, but clearing debt is a good habit to get into and the rate could easily rise."
“Turning to pensions, Joe and Vicky have made a good start by joining their employers schemes. Both of these pension schemes provide details of the pensions they might receive at their normal retirement age, 65. Vicky plans to retire earlier than this and therefore other resources will be needed from age 50."
“Joe and Vicky should review the estimates of how much pension in today’s terms their schemes might give them. On top of this will be state pensions but not payable until age 68. This will give them an idea of what they might get and, when compared to what they have, they can plan accordingly.”
