For freelancers, phase one of self-employment is all about survival. Winning enough work to pay the bills is ultimately the priority, particularly for the growing army of young freelancers who have limited capital, if any, and simply must hit the ground running.
Phase two is a little different. With business starting to tick over, you might find yourself in a position to think about your longer-term financial security.
The fear of running out of work will forever drive us on in the hunt for new clients, but inevitably our priorities evolve as our business matures. We start to think ahead.
Without employment benefits like holiday or sick pay, paid maternity or paternity leave, or employer pension contributions, as freelancers, we have lot to plan and pay for.
This isn’t a career choice for the faint-hearted, that’s for sure. But the stats suggest the vast majority of us have no interest in going back into employment. For the record, I place myself firmly in that camp too.
With that in mind, the responsibility for focusing on things other than the day-to-day realities of being in business rests squarely on our own shoulders.
It is vital that we make ourselves focus on these things if we plan to stay independent. And what’s more, if you want to experience any sense of financial security, you must identify what you need to prioritise.
But how? It’s not rocket science, but it does require a bit of discipline, perhaps even self-restraint occasionally.
Save – it’s (just about) possible
So, business is going well, and you’ve got a spare bit of cash. Time for a new car, a Rolex if you must, or perhaps it’s time to save some money – not particularly exciting advice I’ll admit, but sensible nonetheless.
If you’re the free-spending frivolous type, easy-access savings accounts are dangerous. You’ll do better to lock your money away in a fixed-rate savings account for the long term.
The new Lifetime ISA is definitely worth considering too. It allows you to save up to £4,000 a year until you reach 50, and it’s helped by an annual government top up of £1,000.
A quick trip to Money Saving Expert will also give you a simple breakdown of the best ISA and savings accounts depending on your plans.
Despite the Bank of England raising interest rates for the first time in 10 years this month, they still sit at just 0.5 per cent.
Many current accounts have higher interest rates than some savings accounts, so if you can keep yourself from temptation, opening a current account might be the sensible option.
You’re never too young to save into a pension
New research indicates that nearly three million self-employed people in the UK are not saving into their own pension pot.
We’re all entitled to a state pension of £159.55 a week, but for the vast majority of us, that simply isn’t going to be enough when we’re finally able to retire.
Assuming you were once employed, the moment you took that brave leap into freelancing, your employer pension contributions stopped – which is why you might want to set up a personal pension scheme once you’ve found your feet.
If you don’t know where to start you’re not alone. It can be confusing. The good people of IPSE offer a pension scheme with Aegon, which allows you to save flexibly at a charge of 0.43 per cent – which is less than you’d pay individually.
Invest in property
Supposing you’re in a position to buy your first property, or perhaps even second, my advice would be to do it. But as a 27-year-old renting in London I suppose I would say that, wouldn’t I?
I’m not alone though. Research from the Pensions Policy Institute has highlighted that 53 per cent of self-employed people believe property is the way forward.
They view it as the safest and most profitable way to make the most of their money. Interestingly, just 28 per cent see pensions as the best option, while seven per cent, only a fraction of freelancers, believe the largest part of their retirement income will come from business interests they’ve built up over the years.
Buying property has never been straightforward for freelancers. Despite the fact that on average, we’re able to earn more than employees, we’re still considered a greater risk when it comes to securing a mortgage.
But the tide is changing, and lenders have had no choice but to take into account the rapid rise in self-employment.
Talk to the growing number of specialist mortgage companies like CMME: they understand what it is to be self-employed, and offer tailor-made mortgages.
As an independent professional, you need to protect yourself with insurance. Staple freelancer insurance includes professional indemnity insurance, which will cover you if you’re alleged to have caused a client to lose out financially.
Public and employers’ liability insurance will protect you when an individual, a business or an employee takes action against you, because of injury, death or damage to property.
From IR35 insurance to jury service compensation and even illness, injury and life assurance, there are plenty of ways to give you and your family a little peace of mind and financial security as you grow.
The sooner freelancers start planning, the sooner they can have confidence in their futures.
As our way of working continues to grow, the government might finally look to make our lives easier. But until then, my advice is to take control and do it yourself.