Wealth Check: 'How can I save to start my own business?'

Charlotte Thompson is a single mother who lives in Buckinghamshire with her seven-year-old daughter. She is part employed and part self-employed as a plumber. As well as the salary she is bringing in, Charlotte receives £700 a month maintenance from her ex-partner and £120 a week in tax credits.

Charlotte Thompson is a single mother who lives in Buckinghamshire with her seven-year-old daughter. She is part employed and part self-employed as a plumber. As well as the salary she is bringing in, Charlotte receives £700 a month maintenance from her ex-partner and £120 a week in tax credits.

Charlotte is concerned because she rents the house she lives in, has no savings and no pension provision to speak of. She has a small fund left over from a group pension she had while employed full time for a couple of years, but has not investigated continuing contributions of her own with this.

As a plumber, Charlotte would now be able to earn more money working for herself full time, up to £200 a day she estimates. She has resisted doing this until now because although casual labouring is badly paid, it is a steady income.

Ideally she would like to build up a contingency fund to cover the first few months while she is setting up her business and she would welcome some advice to help her to secure her future.

We put Charlotte's case to Julie Hedge at Christie Scotts, Liz Lyke at Options for Women and Jennifer Storrow at Gee & Company.

Case notes

Charlotte Thompson, 33, plumber

Salary: £4,500 paid employment and £2-3,000 from self-employed work.

Pension: Two years of contributions in group plan with Fidelity worth £3,000.

Savings: None.

Property: None.

Monthly expenses: Rent £500; tools £50-100; public liability insurance on her car £25-£30 in living expenses.

Earnings and Self-Employment

Jennifer Storrow says that if Charlotte is not earning enough then she must consider her options. Perhaps another employer would give her better casual rates and certainly starting her own business is a good option. It is possible to consult your existing bank on how to start a business.

It is essential that she builds up a contingency fund to give some security while she builds up her business says Julie Hedge. A sum at least equivalent to around three months of her salary would be advisable - £3,000 to £3,500.

How quickly this can be achieved depends on Charlotte taking an extremely close look at her outgoings, cutting corners where possible and setting herself a realistic monthly amount to save. Ideally, she should set up a direct debit and ensure that the account this is directed to gives a competitive rate of interest.

She may also wish to consider what would happen, from a financial point of view, on her death. If at all possible she should discuss this with her ex-partner.

Liz Lyke also says Charlotte needs some savings to cushion her until her business is properly established. Setting aside £100 each month for a year would be sufficient to start her business. Charlotte should speak to her bank manager before she does so to arrange an overdraft facility.

Property

While renting a property may not give the security or investment potential of home ownership, Hedge feels there is little prospect of improving this situation until Charlotte increases her income. Her savings regime becomes key; a target amount needs to be decided upon and a budget set.

Obtaining a mortgage as a newly self-employed person can be tricky and so, when the time comes, she needs to be prepared to shop around. She will need to find a lender who will take into account her maintenance payments when assessing her income.

Storrow says the decision Charlotte must make is what she can save from current earnings. If she would like to save for a deposit on a house, as a taxpayer, the best place is a mini cash ISA account for up to £3,000 a year tax free. Alliance & Leicester currently offers 5.4 per cent interest online.

Savings & Pension

Lyke does not think Charlotte should consider restarting her Fidelity pension until her business is running at a profit and she has some savings.

Storrow agrees pension contributions are not a high priority, but suggests writing to Fidelity with a request for information.

When Charlotte is ready to start a pension, she can see local independent financial advisers with her Fidelity information so they can help her to make an informed choice.

Hedge also says pension planning can wait, but that Charlotte should not delay any longer than necessary. As soon she has a regular income she should pay a small monthly amount and then top up on a yearly basis by paying single premiums, gaining valuable tax relief, whenever funds allow.

For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS; email cash@independent.co.uk