Lives in High Wycombe
Occupation On sabbatical
Earns £350 a month
Debts £900 on credit card
Investments Technology fund, deposit account, property
Pensions Personal pension, frozen
Aims To complete studies, travel, establish own business, buy own home and bigger motorbike
Steven Weatherby left school when his parents divorced. He joined an architectural practice as a draughtsman and they paid for him to attend college.
He needed somewhere to live and could afford a mortgage large enough to buy a house for himself, his mother, brother and sister. Last year he finished his degree at the University of North London.
By this time, all three children had left home and he sold his mother's three-bedroom house, bought her a two-bedroom flat, now worth £85,000, and still had money left over. 'The flat is fully paid for, so I do not have that financial burden and am a free agent,' he says.
That meant Steven could take time out: 'When I fin ished my degree, I did not want to crack on for the next two years studying part time. I was going to go full time, which is something I have never been able to afford before. But instead, I decided to take a year out.'
Already the one-year sabbatical is stretching to two: 'I have had a nice time since I stopped work last July.' He recently came back from a month's snowboarding in Tignes and is planning some labouring work back in the French Alps this summer. Later this year he will fly to America for free because Continental Airlines lost his luggage last year.
The one structured part of his sabbatical is attending a bricklaying course. 'Bricklaying is a different side of the architectural coin and I have not had as much site experience as I would like,' he says. Eventually Steven will return to his architectural studies and hopes to start his own small building business: 'Rather than becoming purely an architect, I would like to do my own designs and, if I get enough site experience with bricklaying and labouring, be able to design something and build it as well.'
Meanwhile, Steven earns money as he needs it: 'To maintain my frugal yet stress-free lifestyle, I do some freelance draughting. And I am doing small jobs for friends.'
This enables him to meet his outgoings: 'I only have to pay my rent of £250 a month and for my motorcycle. I have no other commit ments.' He has savings to fall back on: £1,000 in Aberdeen Technology fund 'currently worth about £600', £23,000 in a building society account, and a personal pension with Equitable Life worth £22,850 by the time he stopped contributing. Steven wishes he could use the pension money, perhaps for a buy-to-let mortgage for income.
Adviser 1: Carolyn Corless
Steven should calculate how much cash he needs for emergencies and invest this in an instant access account. There are many excellent internet, telephone or postal accounts. As a non-taxpayer he can receive his interest gross.
He should pay off his credit card bill. Why borrow at 20 per cent when savings earn only 6 per cent? Any surplus can be invested. If he is likely to need the money within a couple of years, perhaps for business equipment, he should keep it on cash deposit. If he is happy to invest for at least five years, he can buy an Isa. I suggest a solid equity income fund such as Newton Higher Income. He should keep the Aberdeen Technology fund. It is a fundamentally good fund that should be left to recover.
The situation with his Equitable Life pension is more difficult. Returns from the with-profits fund could be reduced in future and are more suitable for people who do not like risk or are close to retirement. If Steven moves his fund from Equitable Life, he will suffer a 15 per cent penalty. As there is no guarantee he could make this up by moving, he should leave the fund where it is for the time being. When he restarts pension payments, he should do so with another company. He should keep the Equitable Life policy under review and possibly move it if the penalties are withdrawn.
Carolyn Corless is a certified planner with Sully's Financial Planning.
Adviser 2: Ian Gutteridge
Steven can do very little with his Equitable Life pension other than leave in its current format. He can contribute up to £3,600 to a stakeholder pension without earning if he wishes.
As he needs money in the next few years to set up a business and buy a home, he must invest funds in deposit-based investments. The returns are fairly low but they are safe.
He is gradually eroding his cash to meet his outgoings so he should repay the credit card debt. He should put £3,000 into a cash Isa and the balance in a high-interest account paying monthly income. Capital One's Direct Saver account pays 5.95 per cent gross, which is £76 net a month on £19,100.
Once he is self-employed he will almost certainly need a self-certified mortgage. Lenders require at least six months' satisfactory trading, supported by an accountant's letter, to show he can afford the repayments; he will also need a deposit of between 10 and 25 per cent.
Being single, his standard of living depends only on his being healthy enough to earn, so it is essential to think about income protection and critical illness insurance. Without formal earnings, protection is difficult to obtain, so critical illness is more realistic. Inflation-proofed cover of £30,000 until he is 65 costs around £13.15 a month.
Ian Gutteridge works for Sedgwick Independent Financial Consultants.
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