Saving for the single-minded

Living on your own might mean fewer responsibilities, but you owe it to yourself to sort out your finances, writes Faith Glasgow

WHETHER you are clinging fiercely to your independence or you'd like nothing better than to be swept from the shelf and into connubial bliss, the fact is that single people are on the increase. In 1996 (the latest Office of National Statistics data available) 27 per cent of UK households were one-person; lone parents with children pushed the percentage up to 37 per cent. We are marrying later, we are divorcing more readily; singledom is increasingly a fact of life.

Being single has a lot to recommend it. You have no one to answer to, no dependants to worry about; you are answerable only to yourself.

The flip side, of course, is that there is no one there to catch you when you fall. And that goes for your financial situation as well as your social life.

On the one hand, the chances are that you have no family responsibilities, so you could afford to take a more adventurous investment line; on the other, you cannot assume anyone will be there to help you financially if you lose your job or become too ill to work, or when you retire. What is more, the costs of running a single-person household - mortgage, car, bills - are much higher per head than when there are two earners to share the overheads.

Single-minded financial planning involves taking responsibility for your own well-being in both the long and the short term. Get the key safety nets into place, sooner rather than later, then you can go out and enjoy yourself.

As an initial exercise, particularly if you are new to being single, get a grasp on your budget. Keep a record of how much you earn, balanced against what you are spending and where it goes. Consider also all your investments, insurance policies and any debts, so that you can identify your gaps, weaknesses and strengths.

First, the short term. Young singletons are vastly more inclined to spend than save, but the period before you have a mortgage millstone around your neck is a great opportunity to get rid of debt and stash a regular chunk of income - if possible, 10 per cent - away in a high-interest, easy-access deposit account.

Get your reserves up to a minimum of three months' living expenses, in case you find yourself without work; if you have children to support, or if you are inclined to be extravagant, make it six months.

Above this emergency reserve level, you can earmark money for big expenses such as a car or the deposit on a flat. In the long term, the crucial considerations are a mortgage and a pension.

Mortgages can be crippling if you are alone. However, interest rates are low and falling, and there are a lot of good deals around, allowing borrowers to lock into rates below 5 per cent for the next two years.

Bear in mind that two-bedroom places are more popular (that is, easier to sell) than one-bedroom properties. The extra mortgage cost could be met by renting the spare bedroom out, and if your circumstances change later, you will have much more flexibility in your living arrangements.

Pensions seem a complete irrelevance when you are living for the next 24 hours, and your career during your twenties may be so unsettled as to make it not worth starting a formal scheme. But these days you could have 20 or 30 years of non-working life even if you retire at 65, and that will be no fun at all if you have to make do on the basic state pension of pounds 64.70 a week (which in itself is based on National Insurance contributions over a lifetime - if you take time out from work you will have less than this).

The longer you leave pensions planning, the more of a drain it becomes to boost them to the level you need, so you should certainly have one - either company or private - in place by the time you reach your thirties.

In the meantime, try to build up savings that you don't touch, through Tessas or PEPs, for instance.These are tax-free investments.

A Tessa is a bank or building society account and the best ones are paying about 8 per cent interest.

A PEP invests in shares or bonds issued by companies, and you need to choose carefully. Read the financial press and have a look at internet finance sites (Start at a big site such as Moneyworld on www.moneyworld. co.uk).

Get into the habit of reading the personal finance pages for a while before you invest - you will find out a lot in a short time. If you are very uncertain, ask an independent financial adviser to recommend a PEP for you (but there is no such thing as free advice - you will pay the adviser).

If you get married there is no justification for passing up on pension provision. Forty per cent of UK marriages end in divorce, and while former spouses are likely to get a bite at their partners' pension funds with the introduction of pension splitting (see box on page 19), pru-dent partners will hedge their bets by setting up their own scheme. In the medium term, you need protection against the unexpected. No one is going to be stranded financially if you die (unless you have dependent children), so don't bother with life insurance. The only exception to this is when you have a repayment mortgage. Your family would be liable for any debts if you died, so if you think the house is worth less than the mortgage, get some cheap life insurance (it's called term insurance and you can get it cheaply through discount brokers and direct insurers, both of which advertise in the weekend papers). But it is worth insuring yourself against the kind of awful situation you assume will never happen to you, such as an accident or disease that leaves you unable to work again. Income replacement or permanent health insurance (PHI) will provide you with a regular income of 65-75 per cent of your salary while you cannot work, which may be until you retire. Think about it particularly if you are self-employed. Finally, make a will if you have any strong feelings about where your money should go when you die. Otherwise, in England and Wales, it will go to your parents (assuming you have no children), if they are alive. They may not need the money, and they coul d have to pay inheritance tax on it. A will is especially important if you live with a partner but are not married, as the law does not recognise any claim. Contact IFA Promotion for the names of local independent advisers on 0117-971 1177.