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5 ways financial planning can help if you’re self-employed

Millions of people in the UK are now self-employed. Whether you work for yourself or are part of an industry where contracting is commonplace, it can place pressure on your finances. You need to manage your financial situation and potentially plan for periods where you’re not earning an income. Working with a financial planner can give you confidence in your career and future security.

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

  • 3 million people (12% of the labour force) were self-employed in 2001
  • By 2017, this had increased to 4.8 million people (15.1% of the workforce)

There are many benefits to being self-employed, but it often means you need to take greater control of finances in order to ensure you meet goals. So, how can a financial planner help you?

1. Paying into and managing a pension

The majority of UK employers will now benefit from a Workplace Pension. However, if you’re self-employed, you’ll need to set up and manage your own pension. Whilst you won’t benefit from employer contributions, you’re still entitled to tax relief. For many self-employed individuals, a pension will be the most efficient way to save for retirement.

There are a variety of ways of setting up your own pension and you may have many questions.

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

A financial planner can help create a long-term financial plan that considers your lifestyle now and the one you want to achieve in retirement.

2. Creating a financial safety net

When you’re self-employed, there is a chance that your income will stop or reduce. As a result, it’s important to create a financial safety net that you can fall back on should something happen. This could be a period of illness, meaning your income stops in the short term or a contract coming to an end.

Financial planning should give you confidence that you’re financially secure even if these ‘what if’ scenarios did happen. The right solution will depend on you and your priorities. It may involve building up an emergency fund and taking out an appropriate insurance policy, for example.

3. Building suitable savings and investments

We all know we should be putting some of our income aside. But it can be challenging to know what to do with it. Should you hold in cash or invest? There’s no right or wrong answer to this. It’ll depend on your personal situation and attitude to risk.

With so many different providers and products on the market for both cash savings and investments, it can be just as daunting to decide where to put it. Again, this will depend on you and what you’re saving for. If you’re saving for a goal that’s a year away, you’ll need a very different product if you plan to save for 15 years. Our goal is to help clients pick out the right products for them.

4. Getting to grips with tax liability

As you’ll be responsible for organising your own Income Tax, it’s worth spending some time understanding it. There are often steps you can take to reduce your liability depending on your circumstances. However, there are other areas of tax to be aware of too; could your income from investments be liable for tax, for example?

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 your long-term goals

Financial planning isn’t just about looking at figures though. It helps you to see how your money habits can help you achieve short, medium and long-term aspirations. People often know what they want in the short term, but planning further ahead can be difficult.

If you’re self-employed, it’s worth thinking about whether you ever want to return to traditional employment, when you’d like to retire, and what the future holds. Talking with a financial planner about your wider goals can help put in place a plan that sets 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 have confidence in their future.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The Financial Conduct Authority does not regulate Tax and Estate Planning.