Sarah Bellingham leads a pretty enviable lifestyle at the moment. The 27-year-old earns £40,000 a year as a money broker in the City and lives in a mansion flat a stone's throw from Battersea Park, South London.

In her spare time she enjoys watching films, shopping and meeting friends. She keeps fit by doing yoga, working out in the gym and training to run a marathon later in the year. She is in a relationship but is not planning to get married or have children any time soon.

However, unlike many twentysomethings, Sarah is not living for the moment. She is working hard to manage her finances, has invested in several different financial products and is tucking away a regular sum each month towards a pension.

But she admits that balancing her income and expenditure is a struggle. “Being organised does not come naturally, so I do need some help,” she says. “For a start, I need to keep closer tabs on spending and income.”

Her biggest monthly expense is the £700 rent she pays on the flat that she shares with her boyfriend. Unlike most young professionals, however, she does not have any immediate worries about buying a property of her own. She says: “My parents very kindly bought the flat and did massive renovations. I redecorated, bought the furnishings and pay them a reasonable monthly rent.”

Though still in her twenties, Sarah has already started to build a nest-egg and is keen to put away more. “At the moment I am saving about £450 a month, but I could save a couple of hundred more,” she says.

Her savings include £300 a month paid into a cash Isa with HSBC. She has already put away more than £2,000, but the rate on the HSBC e-Isa has fallen dramatically, from about 5 per cent when Sarah opened the account to 1.75 per cent today.

She has also invested £3,700 in the BlackRock Absolute Alpha Fund but has stopped putting in money because the fund's value has fallen. Her stake is currently worth about £3,500.

Sarah says: “Everyone said that setting up an Isa was a good idea but I am not sure. I am no longer obtaining the same good rate as when I started and find it very difficult to locate information about this.

“In the same way, I am not sure what to do about my BlackRock fund. Should I persevere with it or cut my losses? I am fairly risk-averse at the moment, which is why I have stopped making regular savings into this.”

She also wants to know if her savings and investments could be put to better use elsewhere. She has been looking at schemes such as Zopa, where you can lend money directly to a number of other people and obtain higher interest rates than those available from banks. She asks: “Would this approach of becoming a sort of do-it-yourself-banker make sense in my situation, or would it be taking too much risk on fairly small sums?”

She has also been thinking of investing in an exchange-traded fund (ETF), a product that tracks the movement in value of a stock market index or a commodity. “I was thinking of putting some money in an oil ETF and wondered if this was a good idea for me,” she says.

Not content with these early forays into investment, Sarah has also started a pension. In addition, she has a frozen pension from her previous employer, worth nearly £6,500, and is unsure what to do about it.

Since last summer she has been contributing £200 a month towards a money-purchase pension with her current employer, who pays in an amount equal to 5 per cent of her monthly salary. She asks: “Am I doing the right thing putting a substantial monthly sum into a pension? Is this the best way to save?”

Sarah Bellingham - What the experts say

Overall strategy: James Norton, Evolve Financial Planning

“Sarah should build a cash buffer to fall back on in case of emergencies. Cash Isas are a good place to hold this - and though interest rates have fallen dramatically, inflation has, too, so the real return has not changed much. A minimum of three to six months' expenses is a good starting point. Once Sarah has a sufficient buffer, she can put more into long-term savings, such as pensions and equity Isas

“Since Sarah is currently 27 with no dependents she can afford to take a high level of risk.

“Although there are clearly risks associated with putting money into equities, this is also true of other types of investment, such as fixed-interest and cash. The latter may seem safer because there is little volatility, but you are not making any gains after inflation. For someone of Sarah's age, it would be acceptable to invest 75 per cent of her long-term portfolio in equities. As she gets older, or her circumstances change, this risk could be reduced. Sarah should not be put off when stock markets are falling and should continue investing. Everyone likes shopping in the sales, but when the stock market falls the reaction of many investors is to sell what they have, not buy more.

“Sarah should look into income protection insurance. She may have some level of cover from her employer, but if not, she should buy it privately. It will not be expensive for someone of her age.”

Action plan

Build a cash buffer.

Continue saving in a pension.

Build long-term savings through equities.

Pensions: Danny Cox, Hargreaves Lansdown

“From a pensions perspective, Sarah is in a much better position than most people in their twenties, with £6,500 saved already and regular contributions of £4,400 a year - more than 10 per cent of her salary. If Sarah and her employer continue with this rate of funding until age 65, Sarah could have a pension pot of £900,000 when she retires. This is estimated to provide a pension of £41,000 a year, though the buying power of this pension in today's terms would be nearer to £15,500 a year.

“For every £100 a month extra that Sarah saves in her pension from now until 65, there could be £230,000 more in her fund, and an extra £4,000 a year pension in today's terms. She will receive basic-rate tax relief on pension contributions, meaning that a £100 contribution costs only £80.

“Sarah should consider whether to keep the £6,500 invested in her previous company's scheme. If this money were transferred to a private pension, she would have considerably more investment choice.

“In the meantime, if she can afford to save more now, I recommend building more capital outside a pension. Retirement income does not usually come only from pensions, it is also payable from investments, including Isas. The advantage with an Isa is that these savings can compliment pensions because the benefits can be taken at any time and the income is almost tax-free.”

Action plan

Increase pension contributions as salary rises.

Consider switching fund from previous company scheme to a private pension.

Build capital outside pensions, too.

Savings and investment: Dennis Hall, Yellowtail Financial Planning

“The rate of 1.75 per cent that Sarah is receiving on her HSBC cash Isa is unattractive and she could receive double the interest from Abbey or Nationwide.

“The Zopa scheme is not the same as putting your money in a bank - instead Sarah effectively becomes the bank. Zopa carries more risk than depositing money with a high street bank. Only invest what you can afford to lose, or can be tied up for a period of time. It is not the place to hold your emergency funds.

“Sarah is making a mistake by stopping her regular savings into the BlackRock fund. In a falling market, the monthly investment buys more units; and as the price recovers, her investments recover.

“However, the BlackRock Absolute Alpha Fund is designed to be largely immune from stock market volatility, and until the middle of last year it was generally rising despite market conditions. Since then it has taken a bit of a tumble, but it has stabilised recently. It is not a cheap fund, but compared with a typical managed equity fund, it has performed well, so the charges are probably justified. It is currently weighted towards oil, gas and utilities, so is more diversified than buying an exchange-traded fund investing in oil, which would be a risky strategy on its own.”

Action Plan

Switch from HSBC cash Isa to Nationwide or Abbey.

Restart BlackRock monthly savings.

With Zopa, invest only what you can afford to lose.

Sarah's response

The most interesting bit of advice was that about the BlackRock fund - instead of seeing that it is cheaper to buy now, I was worrying about the decrease in fund unit value. But since I am investing for the long term, it makes sense to start monthly contributions again.

Mr Norton's advice is helpful and will make me view my cash Isa as a permanent buffer, not as a temporary way of saving. However, I would like more specific advice about medium-risk equity investments because I don't know the markets well enough to play them myself.

I also think that income protection is an unnecessary expense. Despite the state of the economy, I feel that I am young enough to take on a little risk and have no dependants or mortgage to worry about. And it's a relief to know that I am in a good position with pension provision.

I have reconsidered investing in Zopa and oil ETFs. They sound too specialised and, without sufficient knowledge, I realise that they are not a good idea for me.

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