Ellie Simpson, 21, from Oxford, graduated this summer from Queen Mary in London with a First in English and Drama. She is currently living back at home and has a job supervising a bar at her local theatre with the view to pay off her overdraft.
Importantly for Ellie, she is part of a theatre company which is in its early stages and she plans to turn the part-time venture into a professional business. She explains: "You could say that I'm running a business; however, it's currently not-for-profit because all the money we make goes back into the company. I'd like to change this
Salary: £7 an hour as bar supervisor
Savings: £9,000 saved, £3,600 in a NatWest Online ISA
Monthly outgoings: £400 for living expenses, £550 expenditure overall
Debts: Student loan and £2,000 overdraft
Offering advice this week is Aj Somal from Uniec Financial Solutions, Chris Pratt of James Ryan Thornhill and Danny Cox a financial planner from Hargreaves Lansdown...
Ellie's main priority is to repay her overdraft and Chris Pratt says she's right to do so. "Ellie's main concern is to repay her debts and this is a good place to start. I would suggest she focuses on her overdraft, as the interest rate she pays is likely to be a great deal higher than the interest rate she receives on her online savings account."
Aj Somal suggests that she uses the money from her Natwest Online Savings account to clear her overdraft and get back in the black, and Danny Cox echoes this, adding that "the interest rate from the overdraft, plus any fees, is likely to be much higher than the interest she will be receiving on her savings."
Her student debt is less pressing, and Somal advises that she delay repaying it until she is earning an adequate wage from her theatre company.
Ellie's savings are impressive and are described as a "sensible step" by Cox. Somal suggests that she continue to put money aside; however, he warns her to ensure that she is receiving a competitive rate of interest.
Chris Pratt recommends she keep her cash ISA intact but urges her to "keep a close eye on the interest rate. Some banks reduce the interest rate payable on these cash ISAs below that paid on other deposit accounts, thus minimising the overall benefit of them."
Cox suggests that Ellie "shops around" to get the best deal on her savings. "The NatWest Online ISA is paying a pretty good rate at 2 per cent, however others, including the Chesham Building Society and the Newcastle Building Society, are paying 3 per cent," he points out. "Ellie can always transfer her cash ISA to another, better provider, to get a better return."
Additionally he suggests that she set herself a "savings target, a goal to aim at. The amount she can afford to save now may be small, however, getting into the savings habit is important and she can always increase her savings as her earnings improve."
Ultimately Ellie should aim to build her savings, fully using her cash ISA first. This way she can start to repay her student debt as soon as possible because, as Cox explains, "the student debt is low-cost borrowing, however it is still debt that requires repayment."
Ellie plans to be on the property ladder in 15 years, and Cox feels that "she should think about how much money she might need for the deposit for a house or flat. The larger the deposit, the better the mortgage deal, and currently the best rates can only be enjoyed with deposits of 40 per cent of the value of the property or more."
Ellie's theatre company is in its early stages and remains a not-for-profit venture; however she is determined to make it financially viable, and would love to be able to earn a small wage from it in the future. She aims to achieve this within five years. Both Pratt and Cox say she should seek business advice. Chris Pratt believes she should "make use of the local free support on offer from places like Business Link. They will come and talk to you without charge and might even be able to help you with networking ideas, marketing and even grants."
Danny Cox echoes this: "Business expense can generally be offset against profits and advice from a good accountant can literally save thousands of pounds. There are also various returns required, particularly if Ellie has set up a limited company. It would be best for the company to get on a firm footing, even if profits are being reinvested into the business for now. A good relationship with her bank is also important. There are times when small businesses need some flexibility and extra cash flow."
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