Admitting that you have virtually no savings is the personal finance equivalent of admitting that you rarely recycle, yet Michelle and Daniel Mortimer, of St Hugh's, Lincolnshire, have bravely confessed that their coffers are all-but bare, in the hope that our experts can help to fill them.

Michelle, 28, earns £26,650 as a marketing manager for a firm of solicitors. Daniel, 29, a flight lieutenant in the RAF, earns £39,092. They have cleared their debts from car loans and credit cards, leaving them with an estimated £500 to £600 a month in disposable income available to save.

Michelle says: “We had credit card debts and loans that seemed to take forever to pay off. It is such a relief and has finally given us some spare cash,” Michelle says.

The problem is that the couple are not sure where to put the money. They already have a number of savings accounts, it is just that there is not much in any of them.

Michelle has a cash Isa with Abbey that pays less than 5 per cent, but it contains only £200. Daniel has an HSBC cash Isa, paying a respectable 6.25 per cent, with £300 in it and an HSBC savings account with a zero balance. The couple also have a joint savings account with Alliance & Leicester. This contains a more substantial £2,000, but they have already set aside the cash for a new sofa.

The Mortimers' goal is to save enough to enable them to buy a plot of land to build their own home, after being inspired by Michelle's uncle, who built his home ten years ago and has since sold it at a profit. In total, they estimate that a self-build project would set them back £250,000. “The tricky part is finding the land,” Michelle says. “There is not a lot available locally - and if you do get it, you then need planning permission.”

The couple already own a three-bedroom detached house that they bought in August 2005 for £149,000. They remortgaged recently, which lifted their monthly repayments from £700 to £950 because they switched from an interest-only deal to capital repayment. Michelle says that she and Daniel intend to stay in the house until the self-build is complete, but they would like to know whether they would have to sell up first to raise finance.

Michelle says that one main barrier to her saving more is her spending habit. “High street shopping has gone up since we paid off the debts,” she says, though she is satisfied that all their other spending is in check. They have shopped around for phone, gas and electricity and reckon that they have saved £250 a year since switching to cheaper providers. They shop at Asda and Daniel bought a scooter recently to save on petrol.

The couple have pension arrangements in place. Daniel has an RAF final-salary scheme and Michelle has a defined-contribution scheme. She pays in 4 per cent of her salary, while her employer contributes up to 3 per cent. She started this three years ago and also has a £1,000 pot from her previous pension provider. However, she is beginning to doubt whether the work pension will be enough, having received an annual statement that quoted a lower figure than last year's.

Michelle wants to know if she should top up her retirement savings by making additional contributions to a private pension scheme.

The Mortimers: what the experts say

Savings and investment: Jason Witcombe, Evolve Financial Planning

“Michelle and Daniel's goals have different timescales and they need to plan accordingly. If they were to save £500 a month for ten years, at a return of 7 per cent a year after charges, they would have a nest egg of £87,047. If they could stretch this to £700 a month, the fund would be worth 40 per cent more, at £121,866. Life is for living, so I would not recommend that Michelle stops shopping overnight, but if she keeps expenditure under control, it could make a difference in the long term.

“They first need to save an emergency fund, and cash Isas are perfect for this. If they have secure jobs, insurance to cover periods of long-term ill health and a house that doesn't need a new roof, they might aim for, say, the equivalent of three months' salary.

“After that, Michelle and Daniel should each set up a stocks-and-shares Isa. They can save up to £7,200 a year tax-free in one of these. Because they are young, they could probably afford to invest a lot of it in equities, but they will need to keep this under review as they move closer to their goal of buying the land.

“I would recommend index-tracking funds, which have relatively low charges of 0.5 per cent."

Action plan

First save an emergency fund in cash Isas.

Then save at least £500 a month

in stocks-and-shares Isas.

Pension: Dean McCarthy, Cobalt Capital

“Michelle should revisit her company pension scheme and check the level of charges and investment choices available. The decrease in her current pension value is merely a reflection of the fall in global equity, fixed interest and commercial property markets in the past few months and should even out in the long term. As she has a long time before she needs access to her pension, Michelle should keep her exposure to these markets, but her investments need to be diversified.

“If her company scheme has limited investment options, she could consider a stakeholder or personal pension. These have different charges, reflecting the choice of funds. For example, AXA charges 0.55 per cent for access to more than 25 funds, while Friends Provident charges 0.6 per cent for more than 20 funds.

“With 7 per cent growth, investing £200 a month will provide a pension of £20,400 a year at age 65. But Michelle should note that she will be able to access her pension at 55.”

Action plan

Check company pension charges and investment choices.

If company scheme options are limited, consider a personal pension or stakeholder for greater diversity.

Mortgages: Rob Clifford, Mortgageforce

“The main difference between a self-build and standard mortgage is that the former releases cash in stages as construction progresses. Some lenders trigger payments after each stage of work is complete and some pay in advance. Without huge amounts of personal cash at their disposal, an advance-payment scheme would be best.

“Specialist self-build mortgages advance 95 per cent of the land costs and up to 95 per cent of the build costs. BuildLoan's Accelerator is an advance-payment scheme that might enable the Mortimers to stay

in their existing property while the new one is built. BuildLoan offers mortgages in conjunction with lenders such as Skipton, Accord and TMB. A typical deal offers a tracker at 7.39 per cent for three years and allows up to 85 per cent of the total final value.

“Nationwide also accepts self-build, but it lends a maximum of only 75 per cent of the land purchase and funds are released at the end of each stage. It also insists on a 15 per cent contingency fund being in place. Nationwide offers many products, such as a two-year tracker at 6.15 per cent. Some lenders, including Nationwide, permit clients to have both mortgages running, as long as their income covers both.

“Michelle and Daniel should save as much as they can for their dream home. They will require significant savings for the build, as well as an emergency fund for any unforeseen costs that may crop up. I suggest having a minimum of 10 per cent of the expected cost as a contingency fund. They would also need at least 5 per cent of the land value.

“With the advent of the credit crunch, the self-build mortgage market has slowed. However, it remains steady, with more people looking at renovation and development, rather than buying new homes from a developer.”

Action plan

Save at least 10 per cent of the expected build cost as a contingency fund.

Save at least 5 per cent of the land value.

Michelle's response

“We have decided to each invest in a stocks-and-shares Isa to build a deposit. We will review this in five years, when we will start looking for land to buy. Of course, if our dream plot becomes available in the meantime, then at least we now know what other financing options are available to us.

“We appreciate the need for a contingency fund, so we are going to continue saving in our instant-access accounts for this purpose.

“As our priority is saving for our self-build dream, we will heed the advice not to lock away too much money in pensions. I will probably make a slight increase to the contributions to my company scheme at my next review, as well as querying how it is investing my fund. This will help me to decide whether I should set up a private pension farther down the line.”

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