Wealth Check: 'How can I win gold when the cash isn't there?'
Sunday 12 March 2006
The problem: Something has to give for a top skier
Simon Bates, Britain's champion freestyle skier, narrowly missed out on a place in the Winter Olympics. In January's World Cup event at Lake Placid, he needed to make it into the top 20 to be eligible to compete in Turin. Sadly, the 29-year old from Edinburgh came 29th.
The struggle to finance his training played a large part in this, he says. "The [annual] coaching costs amount to £5,000 - on top of travelling and accommodation expenses."
To get better results, Simon says he would need to reduce the amount he works - and for that to be possible, he needs funding.
When not competing, he earns around £8,300 in customer services at insurer Standard Life. This is supplemented by the £1,000 he receives as an instructor at his local ski school.
In order to have a career to fall back on, he is currently studying for a certificate in financial planning - the basic-level qualification for financial advisers.
Despite his modest salary, Simon has been disciplined about building up savings to help fund his skiing. He draws an income from the £19,400 in his Alliance Trust "self-select" individual savings account (ISA), where money grows tax-free. He also has £5,000 in a Cahoot savings account, paying 4.85 per cent, and £2,500 in a share account with broker The Share Centre.
But Simon also has debts to overcome. He owes £7,700 on a loan from Cahoot at 5.8 per cent, and £5,000 on a loan with Alliance & Leicester (A&L) at 5.9 per cent.
On top of that, he owes £2,800 on an A&L credit card, which is interest-free until June (by which time he plans to have it paid off), plus £2,800 in student loans.
Simon shares the cost of the interest-only £69,500 mortgage on his flat with his brother. They bought the property - currently worth £140,000 - in April 2004, with a two-year discounted variable-rate deal from Standard Life Bank at 4.95 per cent.
He doesn't pay into a pension and has no insurance.
The cure: Get your employer to raise its game
Drawing on savings is a short-term solution, says Justin Modray of independent financial adviser (IFA) Best-invest. "He should knock on Standard Life's door - given that he works there - and see what it can offer in terms of sponsorship."
If this isn't forthcoming, Simon may need to make the difficult decision of whether to continue.
A switch of savings from Cahoot (where they're taxed) to a mini cash ISA with a good rate will make his money work harder, says Dominic Mansley of IFA Key Financial Planning. The Halifax pays 5 per cent.
"He can [first] utilise his £3,000 allowance before the end of the 2005-06 tax year and then move the rest of the money after 6 April."
Simon's Alliance Trust ISA has turned in a "reasonable" performance, says Mr Modray. "Because it invests across global markets, it provides a good spread of risk and opportunities for growth."
But if stock markets fall, the returns will suffer - and Simon cannot bank on his investment continuing to rise, adds Mr Modray.
Simon's personal loans are at competitive rates of interest, so it's unlikely to be worth shopping around for a better deal.
If he hasn't repaid his credit card by June, he should consider moving the balance to another 0 per cent deal, says Mr Mansley.
The student loans are not a concern, adds Mr Modray, as interest is charged only at 3.2 per cent. And he won't have to start repaying them until he's earning more than £15,000.
Simon and his brother should seek a better deal when their discounted mortgage deal ends in April, says Amanda Davidson at IFA Baigrie Davies. "They should see what deals Standard Life Bank offers and compare this with other deals on the market."
Bristol & West currently offers a two-year discounted rate of 4.79 per cent with no fees, she says.
Mr Mansley says a fixed-rate deal might help them budget more easily, and picks out a two-year fix from Nationwide building society at 4.44 per cent. "This does have a £599 arrangement fee, but it could be added to the loan."
Simon could also consider raising additional finance when he remortgages, adds Mr Mansley, to help with his personal loans.
"These are being repaid at a higher rate than would be the case if they were consolidated with the remortgage. And spreading the cost over a longer term will free up income for the expected increase in his training expenses."
However, adding his debts to his mortgage will work out more expensive in the end, as interest will be charged on the higher mortgage amount for longer.
For a competitive skier, having no insurance in the event of injury or illness is unwise, says Mr Mansley.
While Simon may struggle to get any critical illness cover or income protection from a mainstream insurer, he should investigate any special arrangements offered by professional ski associations, he stresses.
Ms Davidson adds that Simon should check whether there is any death-in-service benefit offered by his employer.
Ms Davidson also urges Simon to see if Standard Life has a pension scheme, so he doesn't miss out on employer contributions.
Even if he were to save £100 a month into a pension between now and the age of 65, his pension income might be only £6,000 a year in today's terms, warns Mr Modray. "But he should start saving for retirement as soon as he can."
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