Wealth Check: How can she buy a home when 'saving seems impossible'?

A 30-year-old who has a bright future ahead but admits she's 'terrible with money' seeks expert advice. By Harriet Meyer

The patient

Jo Mizen, 30, is desperate to get a toehold in the housing market and secure some sort of financial future. "But I have no idea how to begin," she says. "Saving for a deposit seems impossible as I'm terrible with money."

Jo earns around £30,000 a year as an art editor at a magazine group, and pays £200 a month to rent a room in a three-bed flat in Billericay, Essex.

She has good prospects in her chosen profession. "I plan to move up the career ladder to art director and hopefully nudge the £40,000-a-year mark."

Yet despite a decent salary, Jo hasn't managed to put much money away. She has £1,500 in a cash individual savings account (ISA) with Barclays, with interest paid at a rate of 6.5 per cent, to which she contributes £125 a month.

"I want to have at least £10,000 in savings before seriously considering buying my first home," she adds. "But I always seem to spend above my means so can't see how this will happen."

She is concerned, too, about long-term savings: "I want to provide for a decent pension for my old age."

Debt is another burden, as Jo took out a £6,000 personal loan to pay off credit card bills after a stint travelling. Her parents have helped her out by paying this off. "But now I owe them money, although they tell me to repay it when I can," she says.

She owes a further £6,000 in student loans.

Jo is not contributing to a pension plan and has no protection policies in place. "I was self-employed, and although I'm now with a company, I haven't joined its pension scheme."

The cure

Without reining in her spending and saving considerably more each month, Jo will struggle to get on the property ladder, stresses Ajmer Somal from independent financial adviser (IFA) Positive Solutions.

But with the property bubble bursting and prices falling in many parts of the country – a decline that may well be quite prolonged – she would be wise to delay buying until she can build up a big sum in savings.

Savings/investments

Jo should continue to maximise her cash ISA allowance by making regular contributions, says Donna Bradshaw from IFA firm IFG Financial Services.

The Barclays account is paying a high rate, but as this includes a one percentage point bonus for 12 months, she should check to see if it stays competitive once this period ends.

"It's encouraging that she's started saving regularly into an ISA, which is also one of the most competitive currently on the market," says Ms Bradshaw. "But based on her income and the amount of rent she pays, she should be able to save much more."

If Jo cuts down on any unnecessary spending, it is realistic for her to be setting aside around £400 to £500 a month in a high-paying cash account. For this financial year, 2008-09, the sum she can squirrel away in a tax-efficient ISA rises from £3,000 to £3,600, which will benefit Jo.

If she stays focused on saving and keeping a tight control of her budget, she could accumulate £10,000 within two years, adds Anna Sofat from the IFA firm Addidi. She can reduce her living expenses by making basic lifestyle changes, cancelling any unnecessary direct debits and shopping around on utility bills.

Jo should steer clear of the stock market for now, the advisers agree. Investments in shares are for the long term and she will need access to her savings. But once she has built up a cash reserve, a stocks and shares ISA should produce strong investment returns.

Debt

Since the rate on student loans is linked to inflation and currently stands at just 4.8 per cent, Jo should not worry about clearing the debt immediately, says Ms Bradshaw. "But inflation has been going up, so the interest payable is also increasing."

Property

Jo should work on building a deposit of at least 10 to 15 per cent of a property's value in order to be accepted for the best mortgage deals, says Ms Sofat. But given the current conditions in the housing market, she can afford to hold back from buying until the dust has settled.

"Property is historically overvalued and I think prices still have some way to fall," says Ms Bradshaw. "It usually takes around four years from the bubble bursting for prices to reach bottom, and then quite a few years after that before they start to rise again."

Although the cost of a mortgage would be less with an interest-only loan, buying with a friend or family member is also worth considering as she would be able to borrow more when she decides to take the plunge, says Mr Somal.

But problems can occur when one person wants to sell before the other, so legal advice should be taken here.

Retirement

The advisers agree that Jo should consider joining her company's pension scheme. "It's particularly important to take advantage of this if the employer is contributing to the scheme as well," explains Ms Bradshaw. "She is effectively turning down a pay rise if she doesn't."

Protection

Mr Somal recommends that Jo sees what insurance benefits are provided by her employer. She should consider safeguarding her earnings against long-term sickness or injury through an income protection policy.