Wealth Check: Debts get in the way of a film-maker's dream
Ambitions to save enough money to set up an independent film company are hampered by too many loans and high monthly outgoings
Sunday 12 September 2010
Aspiring film-maker Andrew David wants to set up an independent film company, but debts of more than £25,000 are delaying the dream.
The 28-year-old from east London is well qualified to enter the creative industry, with a BA in video production as well as an MA in real-time media communications. He has collaborated on a number of music videos, most recently Kele Le Roc's "Retro" and David Jordan's "Don't Wanna (Hear You Say)", and his film on Excalibah, the former BBC 1Xtra DJ, was screened at the Sheffield International Documentary Festival.
However, with £17,000 of combined student and career development loan, £2,500 of credit card debt (spread across a HSBC Visa card charging 15.9 per cent and a Virgin card charging 17.9 per cent) and a £6,200 interest-free loan from a family member, Andrew carries debt totalling £25,700.
His income is limited as he left full-time work last year to focus on setting up the business. He works as a part-time broadcast monitor for two days a week, giving him a monthly income of between £550 and £600, and has outgoing expenditure of £519 after moving back in with his parents.
Clearing the debts
Joss Harwood, chartered financial planner at Durham-based Eldon Financial Planning, says compromising will be key if Mr David wants to achieve his goal of setting up a film business. "Andrew will need all of the determination he is showing in the pursuit of his dream to fight his way to a better financial position. He is caught in a tricky position – unable to give up work completely, yet ideally needing to channel all his energies into the new venture to make it work. He may need to be patient and extend his timeframes," she advises.
When it comes to clearing his debt, Ms Harwood recommends tackling the credit card debt first, as the high interest rate applied to it means left unaddressed it may balloon in size.
"If funds are made available, it would make sense to at least repay the credit cards to save on interest. Andrew could then afford to pay his family member some interest which would reward them for their help. He could offer to pay, say, 5 per cent a year for a further £5,500 loan to repay the cards and give him the £3,000 business capital required in the short term."
To help to free up funds to do this, she recommends that he revises his outgoing monthly expenditure. Mr David's monthly costs are £60 for an Oyster card, £20 for petrol, £200 for food, £42 for gym membership, £5 for website hosting and £162 on career development loan repayments. "Perhaps the gym membership has to be given up to save £42 per month. At 7 per cent of his income this is a comparatively large outgoing," she says.
If further funds are not available, Ms Harwood recommends Mr David investigate a balance transfer for the £2,500 to gain a 15-month period of 0 per cent interest. "Most providers have income limits of £10,000 to £25,000, but if his credit rating is good, Santander will consider him. There is a fee of 3 per cent. The £35 per month interest saved plus the gym membership would mean finding a further £98 per month to repay the debt within 15 months. Successful completion of this strategy will also improve his credit rating.
"Student loans do not have to be repaid quickly, and the current terms are such that Andrew won't have to make any repayments until his earnings increase to over £1,250 a month."
Ms Harwood calculates that a loan of £10,000 at 9.9 per cent – a typical career development loan rate – with a payment of £162 per month would take about seven years to repay. A student loan of £10,000 at 4.4 per cent – one of the rates now applying depending on when the loan was taken out – would take six years to repay with the same level of contribution.
Building up capital
Mr David believes he will need about £12,000 to kick-start his business, covering the cost of equipment and marketing. He already has borrowed £7,500 from a family member and will need another £4,500 to reach his target, although the financial advisers believe he should seek professional business advice before channelling the money into the business. Paul Duckworth, chartered financial planner and managing director of Paul Duckworth IFA, also recommends that Mr David pay off his debt first and extend his timeframe so as to be in a solid financial position.
"This would be much easier if he could increase his income," he says. "I am sure he is putting all his effort into building up his business and trying to make it profitable. However, if there is no immediate prospect of the business generating profit it may be necessary to extend his part-time hours, or even return to full-time work until his debts are reduced and his has built up the necessary capital."
When Mr David has a larger regular income, Mr Duckworth recommends transferring his savings to a cash ISA to take advantage of a higher rate of interest over the long term. "Although interest rates are low at present, they must start to rise at some point, and the interest on cash ISAs is tax free. Make sure you can access the money at reasonable notice."
Another way of building up capital, he says, would be to seek outside funding or consider finding a business partner with larger financial resources or the requisite equipment already. "A visit to Business Link might pay dividends for Andrew. I understand there can be funds available specifically for creative content. However, he will need a solid business plan and a thorough understanding of the market in which he wants to work," adds Mr Duckworth.
Building up a nest egg
While Andrew has many years ahead of him before he retires, he should consider his pension options. He has £1,000 in a pension scheme, but says he is reluctant to make further contributions because he believes hard work over the next decade will give him financial stability. However, Graham Laverick, managing director of WR Financial Management, says there are big advantages to be had from saving from a young age.
"By making contributions from a relatively young age, Andrew will have the opportunity of building a sizeable fund for when he wants to retire. He will need to make an awful amount of money in the next 10 years to live off for the rest of his life. A million pounds would provide an income of between £50,000 and £100,000 per annum with the prospect of keeping the capital intact – but to accrue this amount of money over the next 10 years may be totally unrealistic especially as it will have come out of net income."
Mr Laverick calculates that if Andrew were to start a stakeholder pension, contributing £50 net per month, he could expect to accumulate a pension fund of about £50,100 at age 60. This assumes an investment growth rate of 7 per cent per year.
Do you need a financial makeover?
Write to Julian Knight at the 'Independent on Sunday', 2 Derry Street, London W8 5H or email@example.com
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
Bargain Hunter: Exclusive discount on a SmartGlider - a self-balancing electric scooter
My Tinder date asked for a refund when I declined a second meet up
10 tips for taking out a personal loan
Number of parents moving to their desired school catchment area is increasing, according to Santander research
Bank-beating exchange rates on your international payments
- 1 More than 11,000 Icelanders offer to house Syrian refugees to help European crisis
- 4 Make your voice heard: Sign The Independent's petition to welcome refugees
- 5 Refugee crisis: Aylan's life was full of fear - in death, he is part of 'humanity washed ashore'
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
Day In a Page
With four bedrooms, this spacious maisonette in a mid-terrace period-style house in Holland Road is well-maintained and offers high ceilings and period features.
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.