Annual income: $50,000 before tax.
Monthly expenses: $740.
Savings: None.
Debts: Personal loan, $14,000; interest-free loan from parents $8000; car loan $9000.
Goals: To save for the future, buy a property and to travel.
*Not her real name.

Shauna, 30, is a single parent who struggles to organise her money. She wants to buy a property but wonders what she can do to achieve her goal.

"My financial habits are pretty lax," Shauna says. "I tend to save a bit of money, then either get a large bill to pay off or find something that I really have to have."

Shauna tries to save $200 a month but due to an influx of large bills recently her savings account is now empty.

Ultimately she would like to purchase an inner-city home, but would consider buying in the country in the longer term. She expects this to cost about $400,000.

Shauna shares her house with another person and finds the extra rent money helpful.

"I enjoy going to dinner and meeting friends out for drinks," she says. "I want to ensure my eight-year old daughter has a range of different experiences and so I try to enrol her in (a range of) classes."

Shauna would like to indulge her passion for travel. She also wants to spend more time with her daughter. "Travelling to visit friends and family who live around Australia is one pleasure that is a bit cheaper so I try to do that as much as possible," she says.

Shauna would like to travel overseas with her daughter and ensure that she has a secure financial future.

Maurice Patane, a certified financial planner with Access Financial Management and a member of the Financial Planning Association, replies:

Shauna, you need to work out what your lifestyle priorities are and work out a time-frame for achieving these goals.

I suggest that you establish a cash management trust account to help you manage your savings and expenses.

A cash management trust has similar features to a standard bank account, provides at-call access to funds and pays a competitive rate of interest on the entire account balance. At current rates, this is about 3.5 per cent a year.

Cash management trusts primarily invest in high-quality, short-term Australian Government and bank-backed securities and generally do not attract entry, exit or transaction fees.

I recommend that you arrange to have your salary directly credited to the the cash management trust and establish a periodical transfer to your current bank account with the amount you need to cover your normal living expenses, including all loan repayments. We estimate this will be about $1800 per month, or $21,600 a year. It may help to do a budget to work out whether this is sufficient for your needs.

This will help you contain your spending and ensure that your surplus income is captured as it is received. Based on a budget of $1800 a month, your surplus is about $1350 per month, or $16,200 a year.

Your first goal should be to eliminate your $14,000 personal loan. The quicker you pay it off, the more interest you will save. Assuming that our figures are correct and that your loan is at an interest rate of 12 per cent over five years, we estimate that the savings you accumulate in your cash management account should equal the amount owing on your personal loan within a year.

When you have accumulated enough, I recommend you pay out the loan, which will save you hundreds of dollars in interest.

You should continue to repay the loan from your parents at $200 a month. It should take you three-and-a-half years to pay it off as it is interest-free.

Once you have freed up the money you would have directed to repaying your personal loan, you should direct it to repaying your other debts and, when they are repaid, to your savings in the cash management trust.

When you have discharged your debts and accumulated some savings, you need to decide whether you want to use this for travel or buying a home.

If you have a savings capacity of $20,160 a year, that would support a maximum loan of $240,000 at 6.7 per cent over 25 years. When a lender is assessing your loan application it will consider your income, not your savings capacity.

If you wanted to purchase a home for $320,000 you would need to set aside another $20,000 for expenses such as stamp duty, mortgage registration fees, mortgage stamp duty and mortgage insurance. (Your total purchase expenses would be roughly about $340,000). Because the most you can borrow is $240,000, you would need to save about $100,000 to finance the purchase.

It will take you five years of saving $20,000 a year.

If you would like a Money Makeover, send your details, including a daytime telephone number, to: Money Manager, The Age, GPO Box 257C, City Mail Processing Centre, Victoria 8001, or email: money@theage.com.au

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