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

Life and Style
Angel Di Maria is shown the red card
tech
Sport
Roger Federer after his win over Tomas Berdych
sport
Life and Style
News in briefs: big pants in 'Bridget Jones's Diary'
fashionBig knickers are back
Sport
James Milner is set to sign for Liverpool this week despite rival interest from Arsenal
sportReds baulk at Benteke £32.5m release clause
News
The controversial Motor Neurone Disease Association poster, featuring sufferer Michael Smith, has drawn a series of angry complaints
newsThis one has been criticised for its 'threatening tone'
Finacial products from our partners
Property search
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: Financial Reporting Manager

    £70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Guru Careers: Communications Exec / PR Exec

    £25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

    Day In a Page

    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific
    In this the person to restore our trust in the banks?

    In this the person to restore our trust in the banks?

    Dame Colette Bowe - interview
    When do the creative juices dry up?

    When do the creative juices dry up?

    David Lodge thinks he knows
    The 'Cher moment' happening across fashion just now

    Fashion's Cher moment

    Ageing beauty will always be more classy than all that booty
    Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

    Health fears over school cancer jab

    Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
    Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

    'I forgive everyone, but I don't forget'

    Fifa president Sepp Blatter issues defiant warning to opponents
    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

    Weather warning

    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
    LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

    High hopes for LSD

    Meet the volunteer users helping to see if it cures depression and addiction
    German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

    Saving Private Brandt

    A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral