A woman of property - and flat broke

Kerrie Carpenter
Age: 28
Lives in: London
Occupation: Teacher
Earns: ?30,500
Mortgage: ?84,000
Debts: ?2,200 student loan left to pay
Investments: Egg account, ?25 a month being paid
into 10-year savings plan
Pension: Teachers' scheme
Aims: To live in a dream cottage in retirement

Kerrie Carpenter would be £500 a month better off if she did not spend so much on holidays: 'I am atrocious. I always have too many.' She is going to Sardinia in August and Paris for the bank holiday. Then: 'In September, my boyfriend is 40, so we are going to New York.'

Her other expenses are extremely low: 'I am not a great shopper. I don't drink, I don't smoke and I ride a moped, which costs £5 a week in petrol.' She owns a flat in Peckham, south-east London, but rents it out: 'Being a teacher, I thought it better to buy as soon as I could.' Meanwhile, she rents another flat four minutes by moped from her school. She is head of department, teaching politics and sociology to the sixth form and history to the younger boys. She pays £700 rent but sublets, so the flat actually costs £275 a month.

Even knowing how much she spends on holidays, she cannot understand why she always has no money, but is scared of working out a budget. Instead, she is looking towards a retirement cottage. She enjoys teaching: 'It is quite fun and the holidays are massively motivating.'

But she does not intend staying in teaching just for the pension: 'I cannot imagine it for another 30 years. I would be knackered.' She wonders about buying added years for her pension.

She is still going up the pay scale: 'But in two years I hit a ceiling and get no more rises apart from inflation.'

She will have paid off her student loan next May, saving £275 a month, and wants to start some serious saving. She paid £80,000 for the flat, which is now worth about £125,000: 'When I took my first mortgage, I had to borrow 105 per cent but now I have enough to buy another one.' But she is not tempted: 'I have just got some new tenants and it was a lot more difficult to rent out this time.'

Instead, she is thinking of taking some of the equity out of the flat to invest: 'If it was five grand, or 15 grand, what would I do with it? I like to feel that I was not just having it sit there in equity.'

Adviser 1: Anna Bowes

It is not a good idea for Kerrie to take out equity
and increase the debt on her house unless it is
absolutely necessary. She would need to
remortgage and there are no guarantees that
another investment will provide a better return
than property.

The Teachers' Pension Scheme is one of the
better schemes, but the Inland Revenue may not
allow her to contribute additional money. If she
remains in the scheme until 60, she will have
more than 35 years' service. The maximum
allowed is 40 years, so if she saved extra
throughout that time, she is likely to be
overfunded. For the time being she could save for
retirement in an Isa which is more flexible and
tax free.

She should earmark some of her savings,
especially after repaying the student loan, for the
longer term. She can invest up to ?7,000 into a
pooled fund in a stocks and shares maxi-Isa. As a
first- time investor, a UK-based fund such as HSBC
UK Growth & Income is suitable. She could add to
this with global funds such as Fidelity
International. Once she has built up core
holdings, she could add funds from different
sectors, which are likely to be more volatile.

It is vital to earmark savings specifically for
holidays and emergencies in a deposit account
with a competitive rate of interest, such as her
Egg account. She should keep a watch to ensure
it remains competitive.

Anna Bowes works for Bath-based Chase de Vere.

Adviser 2: Donna Bradshaw

Kerrie seems split between the short term
(holidays) and long term (dream cottage) with not
much thought about in between. There is nothing
wrong with lots of holidays, but she should budget
to build up other savings - holidays don't need to
be expensive to be good.

She can decide an annual amount and choose
trips that fit her budget, then save a fixed monthly
amount in a separate account. She should also
have a cash reserve - three months' normal
expenditure - in a mini cash Isa to cover
emergencies, such as repairs on the flat.

She may need short-term savings for a career
change, but should also look at medium-term
saving and either clear her mortgage quickly or
invest in equities. She could remortgage at a
lower rate, but must check for penalties. As a
starting investment, I recommend a stocks and
shares Isa with unit trusts or investment trusts.

For the long term, the Teachers' Pension Scheme
is excellent and topping up her pension a good
idea as, even if she stayed to 60, she would have
a shortfall unless she added more.

Taking equity out of her property to invest in
shares is very high risk. It is more sensible to
reduce her mortgage and build up an equity
portfolio through regular savings. I suggest
medium- risk managed, global growth and tracker
funds.

Donna Bradshaw works for Fiona Price & Partners.

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