Self-employment is on the rise, with more people than ever before. Although the flexibility and freedom it provides can make it an appealing option, it can also leave some people financially vulnerable if not properly planned for. There are steps you can take to improve your financial situation, which is a blessing.
As opportunities and technology have grown in recent years, more people have chosen to work as self-employed professionals. It is therefore becoming increasingly important to provide appropriate financial advice to those who are not traditionally employed.
One out of every three self-employed workers suffers from financial insecurity.
The fact that self-employed workers are more likely to be in financial distress is not surprising given the lack of a stable, reliable income and the protections afforded to those who are traditionally employed. Research has suggested how precarious financial situations can be for some self-employed individuals. In the event that they were unable to work:
More than one in ten (11 percent) would be unable to survive for any length of time if they did not have long-term savings.
Thirty percent of the population would run out of money in less than a month.
When you’re self-employed, it can be difficult to think beyond the next paycheck, but it’s a necessary financial step toward securing the future you want and providing peace of mind.
There are four things you can do to increase your financial resilience.
Establish An Emergency Savings Account
Despite the fact that more than a third (37 percent) of self-employed workers are concerned about the consistency of their earnings, the research shows that many have not put together a financial safety net. A precautionary measure that can help you maintain your lifestyle during slower working periods while also providing protection in the event of an unexpected event occurs.
You should have between three and six months’ worth of expenses in an emergency fund, according to experts. Despite this, the figures indicate that many people would not be able to survive even a month without receiving a paycheck.
Worryingly, nearly half (48 percent) of those surveyed said they would be unable to turn to family or friends for financial assistance if their source of income were to cease. One out of every ten respondents said they would be forced to use a payday lender or credit card. It can be difficult to get back on your feet financially if you rely on high-interest debts to cover day-to-day expenses, even if you return to work after being laid off. If you don’t already have an emergency fund, you should make it a priority to start one as soon as possible.
Make A Long-Term Investment In The Form Of A Pension
The introduction of auto-enrolment has made it easier for many employees to contribute to a pension, but this has not yet been extended to cover self-employed individuals.
As a result, you must assume responsibility for the management of your own retirement assets and liabilities. Payment into a pension is the most efficient way to save for retirement for the majority of people.
As a self-employed individual, you will not be eligible to receive employer contributions. However, you will still be eligible for tax deductions for the contributions you make, this is often an area that self-employed people forget to think about and regret in the long run.
Pensions are also typically invested, which is a good thing. This can help your savings grow at a faster rate, in the long run, thanks to the effects of compounding on your savings account. Even small, regular contributions to a pension fund can add up over the course of a person’s working life. You can put yourself on the right path to securing the retirement you’ve been dreaming about by taking control of your pension.
Making a decision on a pension provider and how your retirement savings will be invested can be a difficult task.
Evaluate Your Financial Protection Requirements
At some point in our lives, we will all be required to take time off from our jobs. If you’re self-employed and experience a financial setback due to illness or an accident, it can be extremely difficult.
Because self-employed workers are not eligible for Sick Pay, it’s critical that you take steps to ensure that you have the financial security you’ll need in the event of an emergency. 35 percent of self-employed workers who were absent from work due to illness or injury last year returned to work before they were fully recovered from their absence. For half of those who committed suicide, finances were the primary motivator.
As previously discussed, it is critical to put in place a financial safety net. However, if you need to be absent from work for an extended period of time, this is unlikely to be sufficient compensation. This is where financial protection can help to bridge the gap between the two. A variety of protection policies are available that can provide you with either a one-time lump sum or a series of monthly payments if you become unable to work.
Taking out an insurance policy that is right for you can give you peace of mind about the future and help you to protect your financial situation. Although this is the case, 55 percent of self-employed individuals do not have life insurance, private medical insurance, critical illness coverage, or income protection.
Another risk is things such as invoices not being paid and having to pay out to legally take charge of your finances. Using a service such as Fleeson Gooing can help with this.
Consult With A Certified Financial Planner
Individuals who want to get their finances in order in the short, medium, and long term, including those who are self-employed, may find working with a financial planner to be advantageous. We can assist you with all of the aforementioned issues and more, such as making the most of your allowances and making plans for the future that you desire.
If you’re self-employed, managing your finances can present more complex challenges than those faced by those who are traditionally employed in traditional jobs. However, this does not preclude you from having confidence in your financial situation. Follow the tips above and you should be able to feel more financially secure as a self-employed person.