Background
Helen Johnson is a 35 year old Advocate. She had worked between Glasgow and Edinburgh for the last five years and owns houses in both cities. She currently lives in her Edinburgh flat and rents out the property in Glasgow’s Merchant City. She has been a firm believer in the continuing rise in the value of both properties and has intended using them as what she calls her ‘retirement plan’, and so the drop in value in both properties over the last few years has shocked her. Helen is self-employed and her income for the last tax year was around £85,000. She has spent most of that money and apart from around £10,000 in her current account has no other savings.
She has always managed her own money and thought that she did it very well until a conversation with some friends recently left her thinking that the only reason she thinks this is because she currently has enough money to do what she wants to do.
Client Objectives
Helen now feels that it is time to put a bit of structure round what she does with her money. Her income should increase steadily over the next 10 years or so and she wants to feel that she’s not going to ‘fritter it all away’.
She would like to keep both properties but is not sure that her mortgages are arranged as efficiently as possible and she is concerned that she has no planning in place to help fund her retirement, although as yet she has not decided when she would like to give up work.
Helen is also keen to make sure that she has made provision to replace her income and pay off her debts if she becomes ill.
Results
We started by asking Helen to accurately note how much she spends, and on what, over a four week period. This is not to stop Helen spending money, rather it is to allow her to understand where her money goes so that she can begin to think about how much she needs to spend every month and how much she can save for the things she wants to do in the future.
We looked at how much money Helen might need in the event of illness or death and agreed that while she has no liabilities she did not feel it important to provide any cover on her death but that we should make a lump sum available in the event of illness that would repay her outstanding mortgages and replace her income until she recovered.
There are several different ways that this can be arranged and we discussed the options to come up with a solution that was affordable.
We reviewed Helen’s two mortgages and were able to arrange them on a better rate bearing in mind that one is effectively now a buy-to-let loan. We also discussed with Helen the likely tax implications of the profit she makes when selling one or both properties.
We had a long discussion with Helen about her career plans and when she would like to retire, resulting in us coming up with a figure for an income that Helen would like to have from her assets by age 55.
The result of all of the above was that we were able to put in place a plan for Helen which not only makes the most of the money she has at the minute but also showed her how much she would need to be prepared to invest in the future to be able to give up work at 55.
Once Helen agreed that our recommendations were appropriate we agreed a review process that allows us to meet with her every year and measure progress.
Key Results
- Financial plan now in place to help long-term objectives.
- Target retirement age agreed for 55 and retirement planning commenced.
- Money saved following mortgage restructure.
- Annual review agreed with VWM.