Expert opinion - what do independent financial advisers do?

Covered mag, presented by
  • | by Adair Cameron

Meeting a financial advisor is not something reserved for the fabulously wealthy.

In fact, most people could benefit from some professional advice. In this series of features,’s resident financial advisor Geoff Pengilley, of Vale Independent Financial Advisers, will take a closer look at six different financial scenarios and recommend a course of action which could help the person in question manage their money better.

The first situation Geoff is presented with is that of a 24-year old office administrator earning £16,000 a year. She lives in a shared house, and is both a reluctant saver and a frivolous spender – social activities and purchases take up a large part of her disposable income.

Her current debt is comprised of student overdraft and credit card and stands at £1,600, on top of an £18,000 student debt. In the short term, she’d like to pay off her credit card and overdraft, but she has long-term ambitions to save for a car, put a deposit on a house and to pay off her student debt.

“Whilst her student debt will be taken from her monthly wage, clearing high interest debt should be the number one priority,” says Geoff. “It is difficult to plan for future savings when you’re treading water financially.”

As a £600 debt may take time to pay off, this person should consider shifting her debt to a 0 per cent balance transfer card to prevent it growing further. “There are a range of cards available that offer 12-20 months interest free and these are worth taking advantage of,” says Geoff. A debt recovery plan can then be put into place. Geoff suggests paying £250 into an instant access cash ISA. He explains: “considering this person’s net disposable income and their preference to spend money on socialising, £250 is a suitable amount to put aside. However, more stringent savers may be willing to sacrifice £100 more.” The exact ISA recommended will depend on current interest rates available but the benefits of an ISA account are clear. “A cash ISA is the most basic form of saving; it’s tax free and when it comes to clearing debt, interest can be earned in the process” says Geoff. This plan will clear a £600 credit card debt within three months and a £1,000 overdraft in a further four months.

After clearing this debt and before tackling long-term goals, Geoff recommends that the next consideration should be an emergency fund. “In an ideal world this will contain a value equivalent to three months’ salary,” he says. For a £16,000 annual salary this would be £3,600; a fund that can be called upon should a plausible nightmare such as redundancy or broken boiler arise. “If three months’ salary is not realistic, a smaller savings amount will surface,” says Geoff. Investing £280 per month into an emergency fund contained within instant access cash ISA would see the client sitting on two months’ salary in nine months and three months’ salary within thirteen months with added interest benefit.

Having established an emergency fund, the next goal will be long-term savings. To achieve aspirations of saving for a car and a deposit for a house, Geoff would advise his clients to take advantage of the cash ISA allowance of £5,100 during until 5th April 2011 and £5,340 afterwards. The cash ISA allowance is half of the total ISA limit of £10,200, and £10,680 as of April 6th 2011, for both cash and stocks and shares ISAs. “The cash ISA should be the first port of call for short-term savings, that is, five years and less” according to Geoff.

Whilst it may not be realistic to invest in the full ISA allowance on a £16,000 salary, keeping with the £280 monthly savings deposit will allow the client to save £3,360 annually and £16,800 within five years, enough to purchase a new car and leaving £10,000 savings to potentially put towards a house deposit.

*Please note that your financial situation, such as income, can change greatly in a seven year period and advice will change accordingly