5 financial planning tips for the self-employed

Today. there are millions of self-employed workers in the UK. Whether working for yourself or being part of a contracting industry, it can place a great deal of pressure on your finances. You should manage your financial situation and plan for periods of time where you are not earning an income. Working with a professional financial planner can give you more confidence in your career and offer future security.

There’s been huge growth in self-employment throughout the UK in recent years. According to official statistics:

  • 3.4 million people (12% of the work force) were classed as self-employed in 2001
  • In 2017, this had risen to 4.8 million people (15.1% of the workforce)

There are lots of benefits to being self-employed, but it quite often means you should take tighter control of your finances in order to ensure you meet your goals. So, the question is, how could a financial planner help you?

1. Paying Into And Maintaining Your Pension

Most UK employers now benefit from a government Workplace Pension. However, if you’re self-employed, you’ll likely need to set up and manage your own pension. Whilst you don’t benefit from employer contributions, you’ll still be entitled to tax relief. For many self-employed people, a pension is the most tax-efficient way to save for retirement.

There are a great deal of ways to set up your pension and you will have many questions.

  • Should I invest through a fund or select my own investments?
  • How much should I aim to put away each month?
  • What kind of income will my contributions afford me?

A financial planner will help put together a long-term financial plan that takes into account your lifestyle now and the one you desire for your retirement.

2. Building A Financial Safety Net

When self-employed, there is always a chance that your income can stop or reduce. As a result, it’s crucial that you make a financial safety net that you can fall back on should you see a drop I your income. This could be for a period of illness, resulting in your income stopping in the short term or perhaps a contract reaching its end.

Financial planning will give you more confidence that you’re financially safer, even if the ‘what if’ scenarios were to happen. The best solution depends on you and what your priorities are. It could involve creating an emergency fund or taking out some type of insurance policy.

3. Establishing A Solid Savings Plan And Investments

It goes without saying, we all know that we should be setting some of our income aside. However, it can be quite challenging to know exactly what to do with it. Should you save in cash or invest? Remember, there is no wrong or right answer to this. It all depends on your personal situation and your attitude to risk.

With so many providers and products on the market today, for both savings and investments, it can be extremely daunting to choose where to put it. This depends on you and what it is that you’re saving for. If you’re setting money aside for a goal that’s only a year away, you will need a totally different product to one where you plan to save for 15 years.

4. Get To Grips With You’re Tax Liability

As you are responsible for carrying out your own Income Tax, it is definitely worth spending some time to understand it. There tends to be steps that you can take to minimise your tax liability, which depend on your circumstances. However, there are many other areas of tax to be aware of too. An example being, Is your income from your investments liable for tax?

Knowing your tax responsibilities enables you to avoid potentially hefty penalties and set realistic expectations. Tax regulations can often be complex and difficult to apply to your situation. This is where working with a financial planner comes in useful. We’re here to help you get to grips with tax and make the most out of your money.

5. Understanding What Your Long-Term Goals Are

Financial planning isn’t only about looking at figures. It can also help you to see how your money habits can help to you to reach your short, medium and long-term goals. People often already know what they want within the short term, but planning further along can be difficult.

If you’re self-employed, it is certainly worth thinking about if you could ever want to return to regular employment, when you would like to retire, and also what the future holds. Speaking to a financial planner about your wider goals can help to implement a plan that starts you on the right path.

If you have any questions about the above issues or any other financial matter, please get in touch. We aim to work with all clients, including those that are self-employed, to enable them to have confidence in their future.