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 firstname.lastname@example.org
The 'no-hang up' scam targets vulnerable people - and your bank may not protect you
Budget 2015: George Osborne is set to get tough with further cuts in public spending
Bargain Hunter: Our exclusive deal cuts the cost of buying foreign currency by 20 per cent
Five Questions On: GB Energy's new tariff
Simon Read: 'Taylor Swift tickets purchased on Viagogo were cancelled hours before the concert'
- 1 Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
- 2 Greece debt crisis explained: A history of just how the country landed itself in such a mess
- 3 People all over the world are getting semicolon tattoos to draw attention to mental health
- 4 Greek debt crisis: Yanis Varoufakis's funniest (and most memorable) quotes
- 5 Swedish minister gives strongest case yet on why EU should stop turning away asylum seekers
More Britons believe that multiculturalism makes the country worse - not better, says poll
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
Sickness and disability benefits could be reduced by £30 a week as part of £12bn welfare cuts
iJobs Money & Business
£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...
competitive: SThree: Are you passionate about sales?Do you have a keen interes...
£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
Day In a Page
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.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
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.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
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 four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
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.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
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.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
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.