“I can’t justify spending £1 on the bus at present,” she says. “Unfortunately, it means I have to walk up the biggest hill you’ve ever seen to get to work. On the other hand, it also means I get home at the same time as Martyn.”They are moving into a two-bedroom flat in a few weeks. “We came across it by chance and snapped it up because it was so cheap,” Ms Ouse says. “We’re really looking forward to moving; it feels like the first step towards ‘grown-upness’.” It cost £126,000 and their parents helped them with a £26,000 deposit. They have a 25-year flexible mortgage with Cheltenham and Gloucester, part of Lloyds TSB.They want to know if they should pour their savings into improving the flat or to put funds aside for a rainy day. “We’d definitely save to improve the flat rather than increase the mortgage,” Ms Ouse says.

“We put down a large deposit to keep the mortgage repayments down.” They reckon they need £5,000 to refurbish the kitchen. “We’re materialistic and would like to get lots of nice things around,” Ms Ouse says.They have £5,000 in savings, part of which goes into the deposit and part for legal fees Ms Ouse has £200 in a Nationwide current account. They have £1,000 in Glaxo SmithKline shares, £1,000 in Compass and £1,500 in Rentokil They want to build a nest egg. “How can we make the most of what money we have left at the end of each month?” Ms Ouse asks.They envisage staying in Brighton for five or six years After that their plans are more vague. It has no application charge, no early repayment charge and an interest rate pegged at a maximum of 2 per cent above Bank of England base rate. Unless they arrange otherwise it is interest-only.Ms Holl says in a flexible mortgage the interest payable on the outstanding mortgage is calculated at the end of each day. By structuring payments the outstanding mortgage amount can be reduced every time money is paid in, which also reduces the total interest.

Over 25 years this can create huge savings.They should think about slightly overpaying their mortgage each month to reduce their mortgage interest rate. This would also let them build an “overpayment fund” which can take a “payment holiday” in emergency.Mr Connolly says flexible mortgages do not offer the most competitive rates. If Ms Ouse and Mr Haigh want to stay in the flat for a significant period and are not likely to utilise the flexibility on a fixed-rate mortgage, a repayment one may be more suitable. A fixed rate means they know their monthly expenditure, important if money is tight.Solution 2: RefurbishingMs Garner says using their money for home improvements is better than personal loans, credit cards or store credit.

Ms Holl says if they want to work on the house soon, it is worth saving into an instant access account. Birmingham Midshires offer 4.1 per cent on their phone account, and Northern Rock offer 4.1 per cent on their online “Tracer” account. Mr Purdon says they should strike a balance between what they want to achieve and the cost of the exercise.Mr Purdon says £5,000 refurbishing the kitchen is not an unreasonable amount, but they should not expect to increase the value of the house because they improve it.Solution 3: SavingsMr Purdon says they should consider investing in an Isa with money left at the end of the month. The advantage of saving monthly is that they can benefit from pound-cost averaging, buying more units for the same amount of money when prices fall. Depending on their risk profile they could save in a low-risk, fixed-interest fund or a medium-risk UK equity-income fund.