Wealth check: 'I want to turn my music into a business'

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The Independent Online

Jay Marsh is a musician from Manchester. Six months ago, he gave up his job of four years as an administration assistant to concentrate on his indie rock band, the Skinny Machines.

Now that music has become Jay's main source of income, he wants to know how to make it work as a business. He mainly plays in Europe with his three bandmates, but much of their money gets swallowed in tax and charges.

"I've never really wanted the rich rock lifestyle, money's not that important to me. Me and my bandmates just need to find the most effective way to handle any profit we make so we can feed ourselves," he says.

Jay, who lives with his girlfriend, Lynne, a doctor, is sceptical about the concept of retirement but hopes to buy a home and one day perhaps have a family.

His case was hotly debated this week by our experts: Dennis Hall from Yellowtail Financial Planning, Danny Cox from Hargreaves Lansdown and Jason Witcombe from Evolve Financial Planning.

Business

The music industry has suffered badly in recent years by the unauthorised downloading of music from the internet, so it's more important than ever for artists to have a sound business plan, according to Hall.

"[Being successful in the music industry] doesn't simply come down to raw musical talent," he says. "It also needs to be approached as if it were a business, in the same way as being a self-employed plumber or electrician."

If Jay eventually wants a mortgage, the experts say that he should try to increase his income by playing more gigs, selling more merchandise or charging more for his performances.

Hall advises Jay not to open a band bank account at this stage, as it could lead to extra charges, but Cox disagrees: "A separate bank account to receive income and pay expenses including wages will make life easier."

Self-employment

By getting into the music business full time, Jay has taken a bold step that many people can only dream of, but it will mean getting to grips with some hefty paperwork as he is now classed as self-employed.

According to Cox, he should register with HM Revenue & Customs (HMRC) and be aware that he is now responsible for paying his own national insurance contributions. This year Jay will have to file his first tax form, so he should keep detailed records of all transactions, including business expenses, which can be offset against tax. Hall says: "It would also be a good idea for Jay to understand what he can claim for with regard to the tools of his trade, such as musical instruments, microphones and amps."

It may seem expensive, but paying for professional help with their finances now could save the band money in the long term. "I would recommend that the band appoints an accountant. The savings they make should pay for their fees many times over," says Witcombe.

Mortgage

Jay is lucky to have an inheritance which could be combined with his girlfriend's savings to be used as a deposit for a house. Cox recommends keeping that money in a cash ISA so that it can be accessed when the time is right.

He says: "The mortgage market is still weak and the best deals are available for those with deposits of 40 per cent of the property value. Being self-employed, Jay will have difficulty arranging a mortgage and the loan may have to be reliant on his girlfriend's income."

Insurance

Like any good business, Jay needs to take out insurance to prepare for any potential disasters. Cox recommends travel and equipment insurance, while Hall suggests income protection. He says: "What happens to your income if you are too ill to perform? A broken limb or similar. How will you cope if you are unable to earn?"

Retirement

Jay is sceptical about the idea of retirement and pensions. But old age comes to all of us, so some kind of preparation is sensible. Hall says: "I understand your concern about retirement not being the same concept as it is today. However, there will be a period later in your life when you are likely to need financial resources other than an earned income."

Pensions are a tax-efficient way to invest, but Witcombe says they're not the only way to save for retirement. "At this stage I wouldn't worry too much about pensions," he says. "This might sound counter-intuitive but it can be a valuable financial-planning tactic in certain circumstances."

He says it is best to hold a mixture of pensions, ISAs and other investments on retirement for greater flexibility. "There is a general misconception that retirement planning means paying money into a pension," he adds. "A pension is simply a tax-advantaged investment wrapper."

Case notes Jay Marsh, 25

Income: Jay's income is between £10,000 and £12,000.

Savings: He does not have any savings.

Inheritance: Jay has £44,000 in a trust fund.

Monthly outgoings: He spends around £950 a month.

Debts: He has no debts.

For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email wealthcheck@independent.co.uk

Want 2010 to be the year you took control of your finances? Here's how, according to Adrian Lowcock, senior investment adviser at Bestinvest...

*Know what you want

Have a clear financial goal for the year. Rather than saying: "I want to have my credit card paid down and more money in the bank", you should say, "I have the balance on my credit card paid down to £0, over £5,000 in my savings account, and a fully funded ISA."

*Prioritise your debts

Make a list of your liabilities and organise them by interest rates. Those with the highest rates (often credit cards) should be paid immediately.

*Open an ISA

If you haven't done so already, open an individual savings account (ISA). You can invest up to £7,200 (£10,200 if you are 50 by the 5 April 2010) each tax year and all interest is free of tax.

*Set up a monthly savings plan

Monthly savings plans can be set up for ISAs or unit trusts. It means you can benefit from a process known as pound-cost averaging. This means that when prices are high your monthly contribution buys fewer units but when prices are low your investment buys more units.

*Review your mortgage

Check when your mortgage is up for renewal. In the current climate your present lender may no longer offer the most attractive rates, so shop around and speak to an independent adviser.

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