Putting my royalties to work would be music to my ears

Mark Cherrie
Age 38
Lives in North-west London
Occupation Musician and music writer
Earns About ?52,000
Mortgage ?68,000
Debts None
Investments ?3,000 in cash Isa
Pension Personal pension
Aims To invest more for the future

Mark writes music for television and has had considerable success. He has completed more than a dozen albums and had some 300 pieces of music published. His music has been used on American shows such as ER and Friends, as well as here and in other countries. He now wants to invest wisely the money he is collecting in royalties.

His life could have turned out very differently. Although he has always loved music, his parents had discouraged him from thinking of it as an occupation. He explains: 'My father was a musician and ran a steel band, but he went through some difficult times and often had to take other jobs to fill in. I don't think he wanted me to have those money worries.'

That was why Mark originally planned to become an optician. But he couldn't get on to the university course he wanted and it wasn't long before he dropped out and got a job as a litigation clerk for a credit company. He worked there for five years.

All this time he had been playing music in his spare time and in 1986 he took the bold step of giving up his day job to become a professional musician. He hasn't looked back since. In 1993, he started concentrating on writing music and has seen his income grow to its current level as his royalties have built up.

However, he realises it is possible that his income could go down again. This is why he feels he should be prudent and save money for the future.

On the advice of his accountant, he channels his income through his own limited company, Shiny Music. The company pays dividends to himself and his wife Sharon, who is also a shareholder in the company. Sharon is a health visitor but is currently doing research for her master's degree. In recent years much of the couple's income has been spent on holidays, a new car, and improvements to their home, which they bought five years ago.

They are repaying their home loan with an endowment mortgage, although they have received a letter from their endowment company, Legal & General, telling them the policy may not cover the loan. However, Mark says he is not too worried about this at the moment and has decided to defer dealing with it until they move to a bigger property in three or four years.

So far Mark has not man aged to save much and he is only paying £50 a month towards a pension. He would now like to start saving more seriously and he and his wife recently opened a mini cash Isa for £3,000 each with Smile.

The couple have two children, Elliot, seven and Corinna, five. He hopes they will go on to university and recently set up friendly society plans into which their child benefit is paid.

Adviser 1: Ian Howe

Mark's first priority should be to protect his financial health against illness, loss of income and even premature death. An income protection policy could be purchased in case of protracted illness. Mark has some life assurance but does need to ensure that he and Sharon have enough protection for the family's lifestyle to be kept should one of them die early.

With their uncertain, yet currently buoyant, financial situation, a flexible mortgage may be a good option. Intelligent Finance (IF) offers one which could fit bill. The rate is less than their present lender's variable rate, so if they kept their payments the same, they would effectively be paying off their loan early, making up for the potential endowment shortfall. If, in addition, Mark saved for future tax bills in an IF savings account, this amount could be offset against the loan, reducing the interest even further.

Saving ?50 a month into a pension at age 38 simply isn't enough. Mark should consider taking advantage of the new stakeholder pensions.

But the problem with pensions is that you can't get at your savings until you're 50. So Mark and Sharon should consider saving the maximum into an Isa. They could each put ?583 a month into an equity-linked Isa over the next five to 10 years.

Ian Howe works for financial adviser Towry Law Financial Services.

Adviser 2: Gordon Wilson

Mark has done well in managing his financial affairs so far. However, he does appear exposed in the event of illness or death. An income protection policy should be considered, and critical illness cover could also be looked at. As a minimum, the mortgage debt should be covered.

He needs to review his life assurance. Family income benefit provides high levels of initial cover at low cost and would pay out a guaranteed income on death. Alternatively, term assurance or whole-of-life assurance could be taken out to provide a lump sum.

Mark should not let the endowment situation run on. I would deal with the position immediately. This could involve converting part of the mortgage to repayment, reducing the debt or making savings into an Isa.

With a move to a larger house planned, I would recommend maintaining quite a liquid position so that Mark and Sharon's options are kept open. Mini cash Isas could absorb ?6,000 of their savings a year.

With the introduction of stakeholder pensions, this is an opportune time to review his pension strategy. He could be paid a large salary this year: this would increase his ability to contribute and would be the basis year for five years of pension contributions.

Gordon Wilson works for financial adviser Thomson & Shepherd.

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