Little savings can mean a lot

Financial Makeover: NAME: JO BRIGGS AGE: 25 OCCUPATION: TV RESEARCHER

Jo works in a very harsh industry, particularly for someone like her, who has not been in it for a very long time and is poorly paid, without the typical benefits many other employees expect from employers. For example, she has no occupational pension entitlement. Jo knows she ought to think about planning for retirement, even at her age.

However, her low wages mean she has hardly anything to set by. Jo knows she ought to be saving, but again, has no money to do so. She wants to buy a house, but has no deposit for a mortgage.

In fact, she describes herself as someone who is "always avoiding phone calls from the bank manager". Despite her financial problems, she is determined to sort herself out.

The adviser: Philippa Gee is managing director of Gee & Company, fee- based independent financial advisers, Foresters Hall, 1a Wyle Cop, Shrewsbury SY1 1UT, (01743 236982) e-mail: gee@compuserve.com

The advice: In recent years you have been "investing" in your career. but you are now very concerned about the state of your finances and need to minimise these worries so you can concentrate on your job.

You have done well to avoid the lure of credit cards, but you have an overdraft that is proving hard to wipe out. The first goal is to get rid of this as quickly as possible because you suffer crippling interest rates of 19 per cent each year for authorised borrowings and more than 25 per cent if unauthorised, as well as monthly charges of more than pounds 5. You will be surprised at how much extra income this will free once the sum outstanding has been paid off.

Although I am sure it is far from appealing, you need to embark on a "financial diet". Just as with a normal diet where you list the food you've eaten, you need to list your outgoings and find out what you are spending your money on.

Would it be possible to reduce the amount? If you were to save just pounds 25 each week, you would have paid off your debt by Christmas (a great way to start the millennium) and have an emergency fund later next year. To get some discipline, I suggest you start your regular savings by setting up a standing order which will automatically take money out of your account, rather than leaving it until the end of the month when it can be easy to overlook.

If you find it difficult to stir up interest, a cheap personal finance software programme may help, and could identify your spending patterns. When you do go self-employed this will save you valuable time.

Go through one of your latest bank statements, because many people find that they've forgotten to cancel direct debits for services they no longer use. If you find just one of these at pounds 10 per month, you could save pounds 120 each year, so for your 30th birthday (assuming growth of 5 per cent a year) you could have more than pounds 600 - pain-free saving at its best.

You have expressed an interest in starting a pension and buying a house. You are right to be concerned that you are not eligible to join an occupational scheme now, and you plan to continue working on a self-employed basis. You have also said that you would prefer to retire early.

You should not be too hasty. Bear in mind that an investment you make into a pension is very much for the long-term, and you will not be able to access it before retirement. Ideally, you need a pension scheme that allows you to stop or start premiums and alter the amount without penalty, but these can be very hard to find.

I would advise you to concentrate only on building up the savings account, and when it reaches a comfortable level, you could then consider starting a pension. You could even use a portion of the cash as a single premium, to "jump start" the policy and make up for the months you have missed.

Secondly, there is the issue of whether to buy a house. Property prices have increased significantly over recent years, particularly in London and although you partner plans to buy a house in his sole name in which you would live, you would like to get on the property ladder, if only to rent it out again. To fund such a purchase you would need a special type of mortgage known as a "Buy-to-Let" scheme. To have the choice of the cheapest of these schemes available, you need a deposit of around 15 to 25 per cent of the purchase price, no small amount. Also, there are related charges including arrangement fees, legal costs and stamp duty.

Assuming you go ahead and buy the property, you then need to find good quality long-term tenants so you can meet the monthly mortgage repayments and this will involve either your time or agents' fees.

Bear in mind that, contrary to what some estate agents will tell you, you cannot sell a property within days, so if for some reason you should have need for money (for example, a gap between jobs) a property cannot be instantly sold.

For all of these reasons, I would advise against buying a house for the time being. Yes, you could miss out on further increases in price, but at least you are not trapped into something inflexible which is not appropriate for you. The key is to regularly review your finances, particularly as your career develops - does your bank account still pay a high rate of interest? Has your cash sum built up enough? Could you consider starting a pension?

You should also look at establishing a five- to 10-year savings scheme investing in stocks or shares, remembering that by investing monthly you reduce the worry of getting the timing right.

Personal insurance is another area to explore in the future, because there are policies such as Critical Illness Cover and Income Replacement cover which are designed to help financially in times of ill-health. These schemes will cost a minimum of pounds 30 per month each to obtain any decent level of cover, so again these should be considered only when you've built up your cash sum to a reasonably comfortable level.

Above all, make sure your financial arrangements suit you and your circumstances. Whether you are dealing with pensions, savings or mortgages, the more you have accumulated, the more options you have available.