How not to run your finances

Harvey Jones discovers his American friend, Jody has kept her "cocktail/sushi" lifestyle going throughout the recession, but she ain't as rich as she thought. Can lovemoney.com members help resolve her dilemma?

My American friend Jody is one of the loveliest people on the planet, and in a moment or two, you're going to hate her.

Well, perhaps hate is too strong a word, but you might be a little bit, um, annoyed.

Jody, 47, has had a good recession. She earns a healthy £80,000 a year, and despite the economic gloom, her job looks as safe as a job can be these days.

She has a £250,000 mortgage, which she took out to buy a two-bed terraced house in Battersea, south London, in 2006.

She fortuitously bought it with a tracker mortgage from HSBC at a time when lenders were chucking around cheap money at 0.25% above base rate. That means her interest rate is currently 0.75%.

Sometimes nice girls do come first.

At least someone has a pension

Oh, and it gets better. Unlike most of my friends, she is actually paying into a pension.

Although that is mostly thanks to her employer, who contributes £500 a month on condition she matches that with £500 from her own pocket.

So her pension is swelling to the tune of £1,000 a month. Her total pot is £60,000, but I think that given her financial advantages, it ought to be a lot higher.

Work, work, work

Jody has the American work ethic in spades, shaming any Briton I have met, and earns her salary.

I know, because a decade ago I employed her as my deputy on a magazine I was editing, largely on the basis of our shared admiration for 1980s indie underachievers Echo & Bunnymen.

It turned out to be the most rational appointment I ever made, and Jody worked so hard I ordered her to leave by 6.30pm, because she made the rest of us look bad, and got in the way of the cleaners.

She now has a much better job (and more demanding boss) as an advertising agency executive.

But, boy, does she know how to spend money. And I need your help to stop her.

That old pizza/sushi conundrum

"Let's meet for sushi!" Jody said, when I said I wanted to reveal her personal finance secrets on lovemoney.com. "I know a nice place Kensington, really authentic. I soooo love their California rolls..."

"Actually, could we do Pizza Hut? I'm a bit brassic right now, you know, the recession..." I mumbled.

"Oh, that. But I am so not going to Pizza Hut. Listen up, you come over to mine, and I'll make you sushi."

So I did, and after tripping over a Hermes shopping bag in her hallway, sampling her proffered Margarita and surveying the ranks of line-caught bluefin tuna on her chopping board, I said:

"Jody, you have got to stop spending money!"

"Hell no! Somebody has got to keep the economy going."

"You can't do it all on your own!"

"I can try."

Pumping money into the economy

Jody is a one-woman fiscal stimulus package, and heaven knows we need her.

"But please," I say, "leave Alistair Darling something to do."

"That loser? Phooey! Here, try some Kanpyo, it's like some kind of dried gourd. It's totally not cheap!"

"Jody!"

Reality check

I love Jody, but she has to get real. I wouldn't want her to renounce her "cocktail/sushi/shoes habit", but she has got some tough decisions to make if she wants it keep it going.

Her to-die-for tracker expires in October, when she plans to switch to a lifetime tracker with HSBC at 2.95%. That would lift her total monthly repayment from £1,030 to £1,300 - an extra £270.

"Hey, all good things must come to an end."

"But £250,000 is still a lot of money and interest rates won't be this low forever. You should use some of your savings to pay down your debt."

"I don't have any savings."

I choke on my Japanese gourd.

Jody should have savings, a hatful of them, given her salary, plus the fact that she is single, so she can't rely on any partner's pension to see her through.

Term time

I then discover another problem. She took out a mortgage on a 25-year term, and it has around 22 years to run.

 "By which time you'll be 69."

"And your point is?"

"Jody, how many executives at your company are 69?"

"Are you kidding? Most are heaved out at 55."

"That gives you eight years, Jody."

"Yikes."

I grab her shiny new Mac and do some sums.

"You would have to pay £2,900 a month to clear your mortgage in eight years. And that's assuming your mortgage rate stays at 2.95%, which it won't."

"Ohmigod," Jody says.

Now we are both choking on the gourd.

California dreaming

With a mighty mortgage and modest pension, Jody has a lot more financial challenges than we first thought.

But now she looks downcast, and I feel bad.

"Sorry to be the bearer of bad news," I say, trying to salvage one of her California sushi rolls, which, like her finances, started off with great promise but are now unravelling before our eyes.

Now be nice, people, because as I said, she's really very lovely. As she said when she fact-checked this piece: "I would understand completely if people are rude about me! I hated myself by the end."

So is it time for Jody to get real - and how can she do it? Join the debate by adding your comments below.

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