Wealth Check: Beats for sale: how to set up a recording studio
A young songwriter and music producer wants to save enough money to turn a part-time hobby into a viable full-time business within a year
Sunday 26 September 2010
Music producer Katriona Weekes dreams of raising enough money to build her own recording studio so she can turn her part-time passion into a full-time independent music label.
The 23-year-old from east London, who goes by the name of Dorn Korus, is well qualified for a career in the entertainment industry having already collaborated with artists such as KyRA Rox and Ryze Devinci.
However, a lack of savings and limited earnings have prevented the ambitious producer from turning her dream – to build a bespoke recording studio within 12 months – into a money-making enterprise.
Currently living rent-free with her parents, Katriona earns between £550 and £600 per month working part-time in television. Her outgoing costs total £400, including £250 in bills, £70 on hair, £30 on mobile phone rental and £50 on travel. She estimates that the cost of building a small recording and production studio will be between £5,000 and £10,000 and she aims to fulfil this goal within one year. Unlike many other graduates, Katriona has been careful to avoid all debt, so despite having no savings, she is in an excellent position to begin raising capital.
Keith Churchouse, a director of Surrey-based Churchouse Financial Planning, says Ms Weekes's goal is realisable but she may have to extend her timeframe and consider taking on more paid work to avoid taking out a loan.
"Clearly, Katriona has a passion for music and its production, but she must treat this as a business from the start to give herself a chance of seeing the project through to profitability," he says. "From a cashflow point of view, income vs expenditure indicates that she could save about £200 a month net at a push. This will create the problem of not meeting her target of getting her studio off the ground within a year as it will take her a minimum of two years to reach £4,800."
"I would suggest that she puts the project on hold for six months and tries to take on extra paying work between now and, say, just after Christmas, possibly filling a temporary part-time role to complement her existing employment. This may not sound appealing; as she has used her nil rate income tax band of £6,475 in this tax year, any additional income she receives will be taxed at 20 per cent. However, if she could both earn extra cash over the next four to six months and save £200 per month from her existing income, her dream would and should take a huge leap forward."
In order to make the most of her savings, Mr Churchouse recommends Ms Weekes consider tax-efficient savings options which offer greater interest than that generally available through a standard savings account.
"Using a cash ISA option would seem appropriate as the maximum that can be held in this type of saving has increased to £5,100 in a tax year. Some savings rates that are available under cash ISAs are subject to tight access and time limitations, so Katriona will need to read the small print. Examples of this might be fixed-rate terms over two to five years and introductory 'bonus' rates that may disappear if she accesses her money in the shorter term."
One current offering that he suggests is with National Savings, which is offering a direct ISA account at 2.5 per cent with instant access and the interest paid annually. Because the minimum deposit is only £100, Ms Weekes would be able to take advantage of this, unlike with other ISAs that have higher deposit requirements.
And while she is not yet fully self-employed, Mr Churchouse says she should keep records of all her outgoings, and collect receipts which may be used later to offset tax charges.
"From a business planning point of view, she should keep all her receipts and details of any expenses that she incurs because she should be able to offset these for tax against any income that she receives that would normally be taxable," he says. "She may need an accountant or bookkeeper at some point, but not until she is ready to really start the business. However, she will need to declare income for tax purposes and she will need to start thinking about this to ensure that she accounts for this correctly."
While Ms Weekes's main financial goal is to build her own production studio, she would be wise to consider her more long-term financial needs as well. As Britons continue to live longer in retirement, the need for a secure pension in old age has never been greater. Ian Hudson, the principal of Salisbury-based Hudson Green & Associates, says there is immense benefit to be gained from Ms Weekes beginning to save into a pension now.
"Katriona is young enough right now to have a considerably positive impact on her retirement planning and for it to be relatively cost effective," he says. "As she has inexpensive monthly costs, she should take advantage of her ability to pay large sums into a pension fund while she can.
"The key to long-term savings is ensuring that you continue the contributions for the long term. Thus setting the amount she pays at a level which is affordable and sustainable into the future is absolutely vital. For example, contributing £100 per month into a pension until age 60 could produce a fund of £160,000, which might yield a pension of £6,500 per year plus a tax free cash sum of £40,000. However, increasing the premium each year by just 3 per cent could increase the fund produced by 50 per cent to £240,000 with the tax free cash sum increased commensurately along with the pension."
It may take a few years for Ms Weekes to establish her own recording studio, but when she has raised the requisite capital she would do well to consider how she can protect herself.
Alex Pegley, a chartered financial planner and director of Hampshire-based Calculus Limited, says insurance should be an important consideration for Ms Weekes if she relinquishes her part-time job as it will mean the loss of a safety net and base line of earnings.
"Once Katriona has established herself, she'll need to protect herself from the unforeseen. This is particularly important for the self-employed, because if they can't work then they don't earn," he says
"My first recommendation would be for Katriona to take out an income protection insurance policy. These pay a replacement income to people who are unable to work through sickness or ill health after a waiting period. I recommend that, wherever possible, people take these policies on an 'own occupation' basis. The benefits are payable until the policy's expiry, the policyholder's return to work or their death. The maximum benefit is linked to earnings, although insurers normally limit it to 65 or 75 per cent of earnings – as they want to incentivise claimants to return to work. Based on Katriona's age, she could take out an 'own occupation policy' to age 60, with a three-month deferred period and benefit of £750 per month (£9,000 pa) for £16 a month."
Do you need a financial makeover?
Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC
- 3 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 4 A third of employers never check job applicants' qualifications, survey finds
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Bin bag full of cats' heads discovered near Manchester's Curry Mile
Disgusting, frustrating, but intriguing: how the country really feels about its politicians
iJobs Money & Business
£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...
£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...
£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...
£45000 - £55000 per annum: Harrington Starr: UNIX Application Support Analyst-...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony