Wealth Check: 'Please help me fulfil my freelance dream'
Our panel of experts recommends that Nita Patel builds up her funds before she takes the plunge into the uncertain world of self employment
Sunday 09 December 2012
Nita Patel from south-east London is keen to get her finances in order so she can take the plunge and go freelance a little further down the line.
The 31-year-old currently works in corporate responsibility, and earns around £50,000 a year.
One of the issues holding Nita back is the fact she has no money in savings at present. While she does have money in investments, it's in the form of around £5,000 in shares with Barclays; this was part of her remuneration when she worked there.
Although Nita has worked hard to pay off some big debts, she still has a little way to go.
"I did have a £13,000 debt, but paid off a big chunk of it this year and made my last loan repayment this month," she says. "I'm now focused on trying to clear the £5,000 on my credit cards with Barclaycard and Lloyds TSB. "
In addition, Nita owes £2,500 to her family. She is also keen to build up her pension savings.
"I paid into a pension at Barclays, but there is only a small amount in this pot," she says. "I've also just started paying 5 per cent of my salary each month into my company scheme, managed by Aviva."
Looking to the longer term, Nita would also like to buy a property abroad in either Spain or Italy as a second home or holiday let.
In the meantime, she already lets a one-bed flat in Brockley, south-east London, which she bought in June 2008 for £190,000.
"The mortgage was originally for £170,000, but I'm in the process of remortgaging as I'd moved onto Santander's standard variable rate," she says. "I'm now looking to move this mortgage onto a five-year fix with Leeds building society at 3.99 per cent."
Nita pays £500 a month to rent with a friend; this includes all bills and sundries.
Our panel of independent financial advisers agree that Nita has been sensible about dealing with her debts, but urge her to establish a sound foundation including greater savings and protection benefit to get herself on a sounder footing. In addition, they recommend she draw up a business plan ahead of becoming self-employed, and that she visits an accountant to ensure she gets her billing and accounts right from the outset.
Continue to clear debts
While Nita currently pays no interest on her cards, it is unlikely to last indefinitely, so she needs to address this, says Patrick Connolly from adviser AWD Chase de Vere.
"I would suggest she consider selling her Barclays shares and use the proceeds to pay off her debt," he says. "The performance of individual shares can be incredibly volatile."
Minesh Patel from EA Financial Solutions, urges her to monitor the share price to obtain the best price for these before the interest-free period expires on her credit cards.
Focus on building up savings
Everybody needs some cash savings for short-term emergencies, says Mr Connolly.
"Nita should aim to build cash savings into an individual savings account (Isa) where interest is tax-free," he says. "She can invest £5,640 in a cash Isa in the current tax year."
However, Ian Hudson from Hudson Green & Associates says she should only consider building a savings pot once her debts are repaid.
Save hard before going freelance
Mr Connolly commends Nita for taking steps to build up her work portfolio, pointing out that this should prove very helpful in giving her an indication of the likely initial interest in her services.
Mr Patel suggests Nita should save at least six months' of income for emergencies, and as much as one year's net income if she plans to become self-employed.
Review property arrangements
As Nita owns one property but lives and pays rent in another, this has a number of financial consequences which she needs to understand, says Mr Connolly.
"She has sensibly reviewed her mortgage rate and is remortgaging at a competitive rate for five years," he says.
"A fixed rate is most appropriate for those who want certainty. However, Nita must ensure her lender knows her property is rented out. She also needs to be aware the rental income she receives is subject to tax – although there are a number of allowable expenses which she can offset against this income."
Mr Hudson also points out that as Nita's flat is not her main residence, she could face capital gains tax when she comes to sell.
Mr Connolly advises Nita not to consider buying a property abroad at this stage.
"These plans should be put on hold, as she has more important financial considerations at this time," he says.
Increase pension saving
Nita's pension saving is in a good place, according to Mr Hudson, as she is contributing regularly to her company pension scheme, and her company is making contributions.
Mr Patel recommends Nita request a projection of what her Barclays pension will give her in retirement, as well as a projection of her state pension.
"She should then undertake a thorough analysis of her current income and expenditure as this will provide a clear picture of additional income she can save into her pension and equity Isas," he says.
Mr Connolly adds that the more Nita is able to invest when she is younger, the easier it will be meet her longer-term saving objectives.
Think about protection policies
As Nita has no dependants, she should focus on protecting her income in the event illness or disability preventing her from working, according to Mr Patel.
"As a starting point, she needs to find out whether her employer offers benefits such as income protection and critical illness cover," he says.
Mr Hudson recommends Nita consider income protection as a matter of urgency, especially as she has no savings.
"Nita has a number of debts which require servicing every months. This could prove draining if she was no longer able to work," he says.
In addition, Mr Patel encourages Nita to write a will.
"She has assets and should define who she wants to benefit from those on her death," he says.
Compare with the Independent: See how much you could save by switching credit cards. Compare now
- 1 To those who can’t see the point of International Women’s Day: you are the very reason it exists
- 2 International Women's Day 2014: The shocking statistics that show why it is still so important
- 3 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 4 Too upsetting? Academy members voted for Oscar-winning 12 Years A Slave 'without watching it'
- 5 Liam Neeson turned down James Bond role because Natasha Richardson said she wouldn't marry him if he took it
Apple's Tim Cook: Business isn’t just about making profit
Thousands of young people forced to go without food after benefits wrongly stopped under 'draconian' new sanctions regime
Ukraine crisis: New navy chief 'defects' and surrenders Crimean HQ as Putin claims ultranationalists forced intervention
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Ukraine crisis: Russia dismisses '3am ultimatum' as 'total nonsense'
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
iJobs Money & Business
£12000 per annum: Inspiring Interns: The company works with Tier 1 FTSE 100 Ba...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...
Day In a Page
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew