Wealth Check: 'I've just started my own company – how can I build up a savings buffer?'
Camilla Turner's image consultancy is less than a year old – and she wants security before she grows the business
Sunday 24 July 2011
Camilla Turner is keen to build a savings buffer after setting up her own business. The 25-year-old from Fulham, south-west London, set up Mode Moo, an image consultancy, in January this year. "I have not yet completed a full year," she says. "However, I anticipate that by the end of this I will probably pay myself a salary of about £10,000."
But she is in no rush to grow the business, and works for a catering company to cover day-to-day living expenses. "I want to ensure I am financially secure before growing the company so that I can support myself in the future," she says. "I don't feel I am maximising my position at present."
Fortunately, Camilla has managed to avoid saddling herself with debt. "When I set up Mode Moo a private investor contributed £5,000 which I used for registering the company, building the website, insurance and other costs that come with starting up a business," she says.
She already has some substantial assets behind her, as she owns a two-bed flat in Fulham outright, worth around £500,000. "Of course, this relieves a lot of the financial pressure," she says.
For short-term savings, she has a business bank account with NatWest, and makes sure to keep £1,000 in this for a rainy day.
"I also have a separate savings account which was set up by my parents when I was born," she says. "But I am not aware of how much is in this – it has been kept a surprise for when I am allowed to access it in a few years' time."
When Camilla is able to, she is keen to invest the sum wisely towards long-term goals such as investing in the business and pension planning.
At present she is not paying into a personal pension. "I feel that this is an area that I would like more help with as I am aware that at the age of 25, I should be putting some money aside for this," she says.
For protection purposes, she pays £90 a year for public liability insurance with Axa, with a £1m limit.
Camilla is fortunate to be in an extremely strong financial position with no debt, a mortgage-free property and a savings pot coming her way, say our panel of independent financial advisers (IFAs).
However, building up an "emergency" savings buffer in the meantime is an essential step to safeguard her position, they stress – then she can consider investing towards long-term goals later down the line.
Building up savings
Camilla should aim to build a bigger emergency fund to avoid simply relying on the business bank account.
At present her personal income is unknown and is likely to fluctuate over the next few years, so she needs to keep her personal finances as flexible as possible. "This means keeping cash available to cater for any income shortfalls or short-term emergencies," stresses Patrick Connolly from IFA Chase de Vere.
If she has any cash to spare, she should opt for an easy-access account paying as high a rate of interest as possible. Ideally, it should be held in an individual savings account (ISA) paying an attractive rate. A selection of the best buys can be found on moneyfacts.co.uk.
It is also vital that Camilla sets aside enough to cover her income-tax bill and, as she knows the dates on which the tax is due, she may decide to use an account with a specific term for this. There are a number of one-year accounts paying 3.5 per cent, including one from Yorkshire Building Society.
Long-term financial planning is not a priority. But this should become important once her business is more established and produces a reliable income stream.
Depending on how much her parents have set aside for her, Camilla will need to decide whether to put this money towards her personal or professional financial objectives – or divide it between them.
For longer-term savings, holding assets within a stocks-and-shares ISA is considered the most tax-efficient method of investing, say the advisers. "Although Camilla's parents may wish for the exact amount to remain a surprise, they may allow her to participate in the investment strategy," adds Steven Poulton, of IFA Brunning Newman Houghton.
"It is important that Camilla holds the account in her name or that the account is held in trust for her," he adds. "If the account is in one of her parents' names it will form part of their estate for inheritance tax purposes which could lead to an unnecessary and avoidable tax charges."
Danny Cox, from IFA Hargreaves Lansdown, says: "In terms of where she invests money in the business, this will depend upon which services provide the best profits and she can focus on those. In the early days marketing is likely to be a good place to invest, to build her client base and her revenue streams."
Without access to an employer pension scheme, Camilla should consider how she will save for retirement.
"Many people put off long-term savings for too long," warns Mr Cox. "However, with her business less than a year old and with a low income, she probably shouldn't be committing money to longer-term requirements."
The advisers recommend Camilla review her financial situation when her business is a year old, and perhaps consider pension provision then. She can think about establishing pension contributions through her business, which has tax advantages, they say.
Yet Mr Connolly stresses that while pensions have the benefit of initial income tax relief, they are inflexible.
In contrast, ISAs can also be tax efficient and will allow Camilla to access her money whenever she wants. This flexibility could be very important.
Turning to state provision, Camilla's retirement age will be 68 and the full basic state pension is currently £102.15 per week, assuming 30 qualifying years of national insurance contributions. Camilla is likely to be self-employed and should ensure she is paying sufficient NICs to qualify.
With a low income and no dependants, further protection isn't a priority. But as her firm grows she should look at income protection and consider other business protection, said Mr Connolly.
"Camilla may consider her parents' savings account and her property as adequate cover, but realising funds from these may be far from easy," stresses Mr Poulton. "She may wish to consider a short-term protection contract running until the savings account becomes available, to safeguard her income."
Do you need a financial makeover?
Write to Julian Knight at The Independent on Sunday, 2 Derry Street, London W8 5HF
Mark Dampier: 'So what if a recovery fund is out of luck? The clue is in the title'
Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help
Questions of Cash: We bought the special ceramic poppies. Then the saga began
Five Questions On: GB Energy's new tariff
Halifax credit card charges: bank is forcing interest rate rises on its customers
- 1 Engineer pictured fixing plane's engine with 'duct tape' by concerned EasyJet passenger
- 2 Two-year-old says goodbye to bin man best friend
- 3 Saudi Arabia mosque bombing: Two volunteer security guards hailed as heroes for stopping Isis suicide bomber reaching worshippers
- 4 There is something wrong but very right about this Bible illustration
- 5 Remove smartphones from the hands of under-18s and maybe they will grow up to be less dumb
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
A nation of inequality: How the UK is failing to feed its most vulnerable people
Australian man punched in the face for defending Muslim women from abuse on train
David Starkey 'tells Amal Clooney to shut up and stop over-promoting human rights'
iJobs Money & Business
£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...
£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...
£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...
Day In a Page
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
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 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.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
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, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
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 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.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
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.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
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.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
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
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool