Vital statistics

Bob and Janet
Bob, 34, and Janet, 33, say they want to save for a home deposit and a business but their savings habits are "sporadic".
Occupations: Apprentice chef and marketing manager
Income: $15,000 and $62,000.
Debts: A personal loan.
Expenses: Rent, $804; car, $90; personal loan, $100; car insurance, $38; groceries, $150 per week; petrol, $20 per week; phone/Gas/electricity $240 per month.
Rent:They pay $215 each a fortnight.
Investments: None.
Savings: $800.
Goal: Save for a deposit on a home or business.

Janet and Bob have been married for six years and hope to set up their own business. They describe their financial habits as "sporadic".

"We're used to having troughs and peaks in our income so tend to go lean at times and then spend up when things are looking better," Janet says.

She says they are quite different in their approach to money. "Bob can shut down on spending altogether. He would walk around with holes in his shoes if I let him," she laughs. "I will often go through spurts of buying for different areas in our lives -kitchen products one month, clothes another, bathroom products another."

Janet and Bob would like to travel overseas more often and to work out a budget that will give them more freedom. They are also interested in finding out how much they should aim to save as a deposit on a home or business.

"We tend not to commit to any big purchases because we don't know what's around the corner," Janet says. "We also tend to blow money on short-term entertainment like dinner out rather than put it aside for bigger purchases."

Bob Beaney, practice principal, Godfrey Pembroke, and member of the Financial Planning Association, replies:

Janet and Bob, you need to sit down together and work out a detailed budget that you can realistically achieve, even in times of low income. It is important to conduct regular reviews to ensure you understand the reasons for any deviations and how to get back on track. For Janet to control her buying splurges, she should compile a list of what needs to be purchased and prioritise each item. By budgeting, she will be able to determine her savings capacity.

If you intend to start saving for a deposit on a home or establishing a business, you need to be disciplined about saving and you should ensure that the savings component of your goals is dealt with before the spending component. You may need to delay the overseas holidays or arrange short, local getaways. Before doing anything, you should eliminate all non-deductible debt such as your personal loan.

When saving for a home, you should aim to save approximately 20 per cent of the value of the home. This will allow for stamp duty and other costs. Before buying, you should take the time to research the house values in the area of interest so that you don't pay more than is necessary. By doing your homework, you could potentially save thousands of dollars.

You will have to save more for a business. Generally it is more difficult to get business finance as you will be required to come up with a comprehensive business plan, especially if it is the first time you have run a business. It may be better to establish equity in a property first - this will help secure capital for the business. Remember that most businesses fail in the first year so, again, research is crucial.

Once you have determined how much you need to save within the limits of your budget, set up a regular savings plan. This money could be invested in a public offer diversified fund. The length of time this money will be invested and the required rate of return will largely determine the percentage of money you will direct to growth assets - shares and property - within the portfolio. The added benefit of entering the market regularly over time means that you are averaging out the cost-price of your investment. This account should be held in Bob's name due to his lower income.

After taking out a mortgage, you should ensure that you have adequate life and income protection insurance.

Once you have the home mortgage paid off or your business is going well, you should consider diversifying your investments.

To achieve a good financial base that will support you later on in life, it is important to develop a growth investment portfolio that has a mix of Australian and international investments.

You have a number of options. I would strongly recommend that you arrange for a comprehensive analysis of your financial position by a member of the Financial Planning Association to ensure that the advice you receive is the most appropriate for you and takes into account all your circumstances.

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