Where does my cash go?

Age 27
Lives in Cheddar
Occupation Trainee clinical psychologist
Earns ?14,800
Mortgage None
Debts Student loans, student overdraft, Barclayloan, credit cards
Investments Tessa
Pension NHS scheme
Aims To save for a year's travelling

Kate Edgar works four days a week and, as well as playing netball and squash, is studying for a doctorate in clinical psychology. She wants to specialise in psychosis, or personality disorder, working with adults with severe mental disorders. She already has the experience of short-term jobs working as a prison psychologist, an assistant psychologist working with older people, people with learning difficulties and as a research psychologist. She loves the work: 'It is fascinating. It really suits me.'

For her job, Kate is organised and disciplined, but outside work she is quite different: 'At home I am completely scatty.' Financially she is in a mess as well. Although 27, she has not earned enough money since graduating to start repaying her student loans - 'a position I would think quite unusual for someone my age'.

She finishes her doctorate next September and then wants to take time out to travel, ideally for a year but more realistically for six months: 'I want to go abroad because I have been studying for 10 years and I need a break. I want to have a wider experience, see a bit of the world before I settle down.'

But her lack of money is a problem: 'I feel I have so little money, but in reality I do have money: I just don't know what I am doing with it. I pay £300 a month rent and usually have about £300 to spend on food, petrol, car disasters and unforeseen events. I did draw up a budget but I didn't stick to it.'

'I'm not that big a spender: I buy lots of little things and I'm stupid. I buy sandwiches rather than make my own. Little things like that eat up the money. I don't buy many clothes. If you looked in my wardrobe, you'd see I haven't bought anything new for about four years.'

Just as she is confused about money, so she is vague about where she wants to travel: 'I need to be aware of how much I have to spend before I can decide where I can realistically go. I would be prepared to earn money while I am abroad but I have not thought about how I could do that.'

Her pension allows her to take time out and she is confident of finding work when she returns: 'It will be easy to find a job when I get back because there are loads of posts available which they can't fill because there is a bottleneck in the training.' Her earning potential is high.

'Until now I have not really taken control of my finances. I need to get a grip on them, pay off as much debt as possible and ideally save some money for travelling.'

She is determined that she will change her habits: 'If I could put nine months of work into saving, that would be really great, because there would be an end in sight. If I really looked seriously at my finances, I am sure I could do something about it.'

Adviser 1: Nicola Page

Kate has made some in-roads into sorting her finances with a Tessa and a pension, but this does not help her short-term financial goal.

She should amalgamate her Visa cards and Barclayloan as quickly as possible to make one monthly payment with a lower interest rate. Finding competitive terms on the internet is easy. For example, on her outstanding balance of ?4,070, Northern Rock charges 10.4 per cent APR, which means monthly repayments of ?131.20 over 36 months.

Most importantly, if she does this she must destroy her existing credit cards. She must not start using them again or she will be repeating the exercise in a year's time, creating a vicious circle of debt.

By reducing her outgo ings, Kate should be able to save ?100 a month. She should put money into her instant access savings account each month by direct debit - but not touch it. Nationwide has an internet-based account paying 7 per cent gross; L&G Bank has a telephone service paying 6.25 per cent. If she records exactly where she spends her money in one week, she will be horrified but, once she knows where money is going, she'll find it easier to budget.

Kate must also budget for her loan while she is away, and for this needs money on deposit. It would be good to maintain the Tessa and pension, but these are not main considerations so long as she restarts them on her return.

Nicola Page works for Bath-based Chartwell Investments.

Adviser 2: David Turner

Kate has clearly worked hard since leaving university and earned an opportunity to have fun, but her debts are getting in the way. Student loans are competitive and the last borrowings to be paid off, but bank loans and credit cards are often punishingly high and should be repaid first.

It may be possible to extend the overdraft, either to provide travelling funds or to repay other loans. She should speak to her bank manager or try a number of banks to consolidate her borrowing at a low rate of interest.

Kate must get a grip on her budgeting as, without a clear idea of how much she spends, she is likely to continue having problems managing debt. Budgeting may be a painful exercise at first, but will become easier.

If Kate can work while abroad, financing the travelling should not be too difficult once she has bought the air ticket. Trailfinders and other specialist travel agents often have competitive fares if Kate is prepared to travel at an unsocial hour and does not mind taking extra time to reach her destination.

On returning to the UK, she will be in her late twenties and will need to address pension planning. The NHS scheme is excellent and includes a number of additional voluntary contribution (AVC) schemes. An alternative to AVCs may be Isas or a stakeholder pension.

David Turner is a senior consultant with Sedgwick Independent Financial Consultants.

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