Should I spend now, or save for later?

Lucy had always been involved in marketing and had been working on a contract basis on various projects for the last eight years. This was earning her a reasonable sum, but she never seemed to have any spare cash. She enjoyed the flexibility of self employment, which meant she could have plenty of holidays each year and take time out for her hobby of flying light aircraft.

She lived in a nice flat in London, but had the inevitable large mortgage, which was on an interest only basis. She had recently broken up from her Partner of six years and this had caused her to reflect on whether she was making the right choices for the future.

How we could help

We sat down with Lucy to work out what was most important to her. Whilst she did not want to completely change her way of life, she did want to feel that she had a plan that would eventually give her the retirement she was looking for.

When we encouraged Lucy to quantify her annual outgoings, she was most surprised at the level of her spending. She readily agreed that with a bit of budgeting and hardly any effect on her enjoyment of life, she could cut this by £500 per month.

We were then able to show her how much income she might expect to receive in retirement based on saving this amount each month, in addition to her existing savings and pension contributions. It was obvious that, whilst it might produce enough to cover her other expenditure, she would not be able to afford the mortgage interest once she retired nor would she ever be able to clear the mortgage on her London flat. The alternative of using her pension to pay down the mortgage would leave her short of income in retirement.

The outcome

Faced with the alternatives of moving out of London, when she retires, or continuing to work much longer than age 60, Lucy herself came up with a third option. She decided to look for a full time well paid job now, which she felt she would need to secure before the age of 40. She is now in employment, and has fewer holidays, but she is gradually paying down the mortgage and still finds time to fly.