So you think the rat race is tough?

Go it alone in business, says Jasmine Birtles, and you're also left alone to manage all your financial affairs

Being your own boss, rather than having another person to answer to, sounds idyllic. But take the plunge and you'll realise how much easier it was working for someone else.

Being your own boss, rather than having another person to answer to, sounds idyllic. But take the plunge and you'll realise how much easier it was working for someone else.

Once you join the ranks of the self-employed you are your own mini-business, incorporating finance department, marketing, sales, production and chief executive. And organising your finances is extra complicated.

"My financial affairs are so complicated that I need as much help as possible," says self-employed political lobbyist Mark Brown. "I have a book-keeper who does my accounts each month and saves me so much in tax and accountancy fees that I would recommend it to anyone."

It is vital for the self-employed to appreciate what percentage of their income they should set aside for tax, pension, savings, mortgage and living expenses. "I would suggest that you assume about 35 per cent of your income should be set aside for tax," says Gary Morris of independent financial adviser (IFA) Towry Law. "Then you should be putting at least 10 per cent of your income into your pension. Savings should be at least 10 per cent, and you could dip into those for critical illness cover, life assurance or health insurance. Mortgage payments should account for only 6 per cent of your income, but that's assuming you have one that is three times your income."

While many advisers recommend you pay as much into your pension as possible, Mr Morris disagrees. "Remember that once your money is in a pension plan, you can't get at it until you're at least 50. So look at the way you want to live your life and consider a range of savings vehicles such as individual savings accounts (ISAs) or property. Then decide which is best for your own lifestyle."

Francis Klonowski, of IFA Klonowski and Co, believes pension provision depends on your future plans. "First, you have to determine at what age you'd like to be independent of your business," he says. "Ask yourself what level of income you would like and then work out how much you need to put in now to achieve that. This amount should then be added into your business plan as an expense. That way you can work out what your turnover needs to be each year in order to achieve it."

The self-employed have traditionally found it difficult to get a mortgage. However, as the ranks of freelancers and contract workers swell, so do the mortgage options available. Flexible home loans are useful as you can vary payments depending on how much money is coming in.

Getting a mortgage, though, is made more difficult by the fact that most people who are self-employed get their accountant to reduce their profits on the tax form as far as is reasonable. This is fine until they want a mortgage because applicants have to show a healthy profit over the previous three years. Luckily, some mortgage providers have begun to realise that a freelancer's profit statement is not necessarily the most accurate indicator of their financial status.

Although only a few financial institutions currently look favourably on the self-employed, this situation is improving. "We see [the] self- employed as a growth area," says Roland McCormack at the Bank of Ireland. "Currently, one in seven workers is self-employed, and that's set to rise to one in six. We've also noticed that freelancers are more loyal to their lenders."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

    The saffron censorship that governs India

    Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
    Prince Charles' 'black spider' letters to be published 'within weeks'

    Prince Charles' 'black spider' letters to be published 'within weeks'

    Supreme Court rules Dominic Grieve's ministerial veto was invalid
    Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

    How did fandom get so dark?

    Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
    The galaxy collisions that shed light on unseen parallel Universe

    The cosmic collisions that have shed light on unseen parallel Universe

    Dark matter study gives scientists insight into mystery of space
    The Swedes are adding a gender-neutral pronoun to their dictionary

    Swedes introduce gender-neutral pronoun

    Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
    Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

    Disney's mega money-making formula

    'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
    Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

    Lobster has gone mainstream

    Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
    Easter 2015: 14 best decorations

    14 best Easter decorations

    Get into the Easter spirit with our pick of accessories, ornaments and tableware
    Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

    Paul Scholes column

    Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
    Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

    The future of GM

    The greenhouses where Monsanto 'plays God' with the future of the planet
    Britain's mild winters could be numbered: why global warming is leaving UK chillier

    Britain's mild winters could be numbered

    Gulf Stream is slowing down faster than ever, scientists say
    Government gives £250,000 to Independent appeal

    Government gives £250,000 to Independent appeal

    Donation brings total raised by Homeless Veterans campaign to at least £1.25m
    Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

    The most borrowed book at Bank of England library? Oh dear

    The book's fifth edition is used for Edexcel exams
    Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

    Cowslips vs honeysuckle

    It's the hunt for UK’s favourite wildflower
    Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

    Did a botched blackmail attempt help Cyril Smith escape justice?

    A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss