There are many benefits to being self-employed – flexible hours, the option to work from home and no fixed holiday allowance. It’s becoming an increasingly popular decision for many, with 15% of people in work now being self-employed according to the Office for National Statistics data.
If you’re one of those who has branched out on their own, or are currently thinking about making the change, there are a few things you need to be considering. Self-employment work isn’t just about making sure your business is profitable, you need to be thinking about your long-term future.
With all of this in mind, we’ve put together five smart tips to help you take all the right steps to secure your financial future as a self-employed person.
Spot the pension gap
Thanks to auto-enrolment introduced in 2012, most people working for a company these days are automatically enrolled into a workplace pension. You can opt out of this, but millions of workers are already enrolled, which means that many people are now saving for their retirement than ever before.
However, if you’re self-employed you will not be covered by this and must start saving for your retirement on your own. It’s never too late to start and if you're self-employed you can choose between a personal pension, a stakeholder pension or a self-invested personal pension. All of which differ as investment choices to help grow your pot.
Know your state pension entitlement
Anyone who’s reaching state pension age today and has paid enough National Insurance contributions will get a State Pension. Knowing what you could be getting from the state pension can help you estimate the amount you’ll need for a comfortable retirement. Roughly, we say you’re more than likely to need around half your income.
Flex your finances
You want your finances to be as flexible where possible if your earnings vary from month to month. An Individual Savings Account (ISA) can be a great addition to pension savings and as well as being tax efficient they give easy access to your savings.
Protect yourself and your family
Being self-employed means you won’t have access to the protections that come with working for a company, such as sick pay, death in service benefits or health insurance. So, it’s well worth considering what protections you need to put in place for yourself and your family. This way, you can reduce or eliminate probate fees and taxes, providing your family with the best opportunity when you pass away.
Get smart about tax
One challenge if you’re self-employed is making sure you’ve put money aside to pay your tax bill. A good tip is to save into separate bank accounts on a regular basis, to stop you from spending the money, and then you won’t feel out of pocket when you need to make those yearly payments.
Due to tax relief, the money you’re saving into your pension can reduce your overall tax bill, meaning you pay less tax. For more information on tax and pensions, take a look at gov.uk.