17th November 2014 at 11:01am
The UN Global Entrepreneurship Week takes place during November, shining a spotlight on people who have taken the plunge and set up their own business, showing real entrepreneurial spirit.
As more and more of us become self-employed, the rise of the consultant, the freelancer and the small business owner is changing the dynamics of work.
Official figures show 15 per cent of those ‘in employment’ are self-employed – with just over half of self-employed individuals aged 25-49 and a third aged 50-64. Everyone from taxi drivers to management consultants appear in these figures.
While it might not be top of the list to think about, pensions and life insurance are two areas where self-employment can leave big gaps and could cause individuals and families problems ahead.
The financial protection with employment
While it might not be top of the list to think about, pensions and life insurance are two areas where self-employment can leave big gaps and could cause individuals and families problems ahead. work for a company, auto-enrolment means workplace pension savings are started for you, and all companies will offer this by 2018. It’s also likely there will be a death in service benefit which could be paid to your family, typically four times your salary as a lump sum, should you die.
These are valuable financial benefits for you and your loved ones. And they disappear once you start working for yourself, unless you make arrangements to replace them.
Case study: A new business makes it harder to think about saving
I recently met someone who has moved from working for a large company to becoming a consultant.
Sarah Buchanan-Smith set up her management consultancy business last year. I had a conversation with Sarah about her finances and the contrast with her former job.
Thinking back to your time working for a large firm, Sarah, can you remember anything about your pension arrangements?
To be honest, no. My company pension just did not hit my radar. It was auto-pilot. It just happened. I couldn’t even tell you the name of the pension provider!
Now that you’ve set up your own business, have you thought about saving for your future?
It’s on my list of things to do, but it hasn’t made it to the top yet. There’s so much to juggle, and this last year has been all about getting the new business up and running.
Top tips if you’ve set up your own business
Sarah isn’t alone in juggling the demands of her new business with her family and other commitments. So here are my ten top tips if you’ve made the transition to working for yourself and need somewhere to start when it comes to sorting out your personal finances.
- Take stock of your savings – what do you have?
- Do you know where you savings are – which companies they are with?
- Get organised and track down lost paperwork
- Review any investments you hold
- What cash savings do you have – have you enough for short term needs and are you keeping cash aside for your income tax bill?
- Think about your goals, medium and longer term
- Take a fresh look at pensions and ISAs. They are more flexible and from April 2015 pensions will effectively become a tax efficient investment account
- Update your Will, especially if you have haven’t done so since having children
- Appoint a guardian for your young children
- Consider setting-up a life insurance policy. If something were to happen to you, this could pay bills and pay for much needed childcare, for example.
Napoleon once called the UK a “nation of shopkeepers”. Today, a more accurate phrase might be “a nation of people with a kitchen table and a laptop”. If talented entrepreneurs apply their business head to their own family finances, they’ll really set themselves up for longer term success. I’d love to hear about your experiences setting up your own business – do post below.
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This blog and any responses to comments are not financial advice. A pension and an ISA are investments. Their value can go up and down and may be worth less than you paid in.