Wealth Check: 'How can I make the most of my savings?'

Simon Tse, 26, from Crawley in West Sussex, works as an administrator at a life insurance company. Having worked solidly since leaving school, he has managed to build up some impressive savings and is now hoping to buy a property.

He says: "Hopefully, with a good job and wise investments I will be able to enjoy myself both in my work and my life in general.

"Ideally all this will be in London – though house prices are just extortionate at the moment."

Simon also dreams of making a living out of his hobby, fashion, but fears jumping into the unknown when he has bills to pay.

Case notes

Income: £23,000
Savings: £51,000
Monthly outgoings: £1,480
Pension: Final salary scheme
Debts: None

Here to advise him this week are Duncan Carter, from Clearwater Financial Planning, Philip Pearson , of P&P Invest, and Danny Cox, from Hargreaves Lansdown...

Property

Although house prices could fall this year, London is an expensive city – with studio apartments starting from about £150,000.

With Simon's salary, Pearson thinks he could get a maximum mortgage of £80,000 – while Carter thinks it could be up to £120,000.

"My advice would be to price up the type of property and area in which he would ideally like to buy," says Carter. "Then he could create a time-scale based on what is realistically affordable and the deposit required."

Simon would be able to put down a deposit of around £50,000 from the savings that he has accrued, which would perhaps make a property worth £170,000 within reach.

But to raise the standard of what he can afford – or to get a better mortgage deal – Pearson thinks he should build up his deposit over the next few years.

Savings

Simon should use his full Isa allowance every year to ensure that he is not paying unnecessary tax.

This financial year, he can shelter £3,600 in a tax-free cash Isa account, so it's worth transferring that money before the 5 April deadline.

Cox says: "Simon should ensure his savings and investments are working hard. Less tax means the greater potential for returns when compared to taxable accounts.

After April, he can stash a further £5,200 away, but Cox advises him to keep some cash available as an emergency fund.

Investments

On top of cash Isa savings, stock market Isas can also pull in good returns, albeit over a longer period of time. If Simon wants to go down that route, Cox recommends using a fund supermarket, which can provide online valuations.

He adds: "However, he should not commit more to the stock market if he thinks there is a possibility he might need the money earlier than five years for a house deposit."

Deposit accounts

The remaining money which cannot be sheltered in Isas should be saved in a competitive bank account.

Pearson says: "I advise a fixed-interest deposit account with the Halifax for a two-year period, where 4 per cent interest is paid gross. The account is available from a minimum deposit of £500."

Career

Simon is building up a modelling portfolio in his spare time – a great way to test a new industry without taking too much risk.

Carter says: "Simon seems to be caught between the pragmatic need to work and earn, and the desire to do something potentially more creative. The savings he has made may help to support such an ambition but his approach of 'feeling his way' is quite a sensible compromise."

Retirement

Simon's company pays into a final salary pension scheme for him, although the experts doubt it will be enough for his retirement – especially as he hopes to finish work at 55 on £2,000 a month.

Pearson explains: "Unless he is prepared to stay with the firm for 40 years then there is likely to be a significant shortfall. To give an indication of the problem he faces, a pension fund of £1m today would be required in order to secure this benefit."

He recommends increasing contributions into this scheme, or else setting up a stakeholder pension, for which there is no initial charge.

Carter warns a sobering 15 to 20 per cent of Simon's salary should be put into pensions every year, and suggests pushing retirement age back to allow for more growth.

Insurance

Life cover is not an issue for Simon because he has no dependants – although he should look into sickness insurance in case he is too ill to work.

Carter says: "He should check what his employer would pay in such an event and then arrange income protection insurance to cover the balance.

"This probably would cost less than £20 per month but provide significant peace of mind."

For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email wealthcheck@independent.co.uk