More people than ever are self-employed. The flexibility and freedom can make it an attractive option but, without careful planning, it can leave some people financially vulnerable. Luckily, there are steps you can take to improve your financial health.

As opportunities and technology have grown, more people have chosen to become self-employed. According to the Office for National Statistics, 15% of the workforce was self-employed in 2018. As a result, appropriate financial advice for those that aren’t traditionally employed is becoming more important.

Financial insecurity affecting 1 in 3 self-employed workers

Without a stable, reliable income and the protection those traditionally employed have, it’s not surprising that self-employed workers are more likely to be financially insecure. Research conducted by LV= has highlighted how precarious finances are for some self-employed people. If they were unable to work:

It can be difficult to think past the short term when you’re self-employed but it’s an important financial step for securing the future you want and providing peace of mind.

4 things to do to improve your financial resilience

1. Build up an emergency fund

Despite more than a third (37%) of self-employed workers worrying about the consistency of their earnings, the research indicates many haven’t built up a financial safety net. It’s a step that can ensure you’re able to maintain your lifestyle during quieter working periods and provide protection if the unexpected happens.

It’s recommended that you have between three and six months outgoings in an emergency fund. Yet, the figures suggest many wouldn’t even be able to last a month without work coming in.

Worryingly, almost half (48%) said they wouldn’t be able to turn to family or friends for financial support if their income were to stop. One in ten stated they’d be forced to use a payday lender or credit card. Using high-interest debts to cover day-to-day outgoings can make it difficult to get back on your feet financially, even when you return to work. If you don’t have an emergency fund, gradually building one up should be a priority.

2. Plan for the long term with a pension

Auto-enrolment has made it easier for many workers to save into a pension, but this hasn’t yet been extended to cover for self-employed workers.

As a result, you need to take responsibility for managing your own retirement finances. For most, paying into a pension is the most efficient way to save for retirement.

As a self-employed worker, you won’t benefit from employer contributions. But you will still receive tax relief on the contributions you make. This is paid at the rate of the highest Income Tax band you pay. So, for basic rate taxpayers, pension contributions will receive a 20% boost. For higher and additional rate taxpayers it will be 40% and 45% respectively.

In addition, pensions are typically invested. Over the long term, this can help your savings grow at a faster pace thanks to the effects of compounding. Even small, regular contributions to a pension can add up over your career. Taking charge of your pension can put you on the right path to secure the retirement you’ve been looking forward to.

Choosing a pension provider and how your savings will be invested can be daunting. If you’d like advice, we’re here to help.

3. Review financial protection needs

At points in our lives, we’re all going to have to take time off work. Whether it’s down to illness or an accident, it can be difficult financially if you’re self-employed.

Self-employed workers aren’t eligible for Statutory Sick Pay, so it’s important you take steps to provide you with the security you’ll need if something happens. 35% of self-employed workers that took time off for illness or injury last year returned to work before they were fully recovered. For half of these finances were the main reason for doing so.

Building a financial safety net, as discussed above, is important. But if you need to be off work for an extended period of time, this is unlikely to be enough. This is where financial protection can bridge the gap. There are a range of protection policies that can provide you with either a one-off lump sum or ongoing payments if you’re unable to work.

Taking out a policy that suits you can give you confidence in the future and safeguard your financial situation. Despite this, 55% of self-employed workers have no life insurance, private medical insurance, critical illness cover or income protection.

4. Work with a financial planner

Working with a financial planner can be beneficial for anyone that wants to get their finance in order with the short, medium and long term in mind, including those that are self-employed. We can help you with the above and more, such as getting the most out of allowances and planning for the future you want.

If you’re self-employed managing your finances can come with more complex challenges than those face who are traditionally employed. But that doesn’t mean you can’t have confidence in your finances. Get in touch with us to discuss how we can help you.

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.