Going self-employed with your own business is exciting and gives you a lot of freedom, but it does also have its downsides. Working for yourself means you lose a lot of the financial benefits and protections you have when in employment, and in some circumstances this can really be something to miss.
If you want the freedom of self-employment with as many of the protections of full employment as possible, then there are a few steps you can take.
While it depends on the field your working in and the individual business, most self-employed people find their income fluctuates. Sometimes business is booming and they make much more than they would working for someone else, and at other times things are slow and their income drops. For this reason, you might want to make sure that a chunk of the savings you put aside when custom is plentiful are kept in easy reach – perhaps in a high-interest current account for instant access – rather than locked away in a hard-to-access savings account. That way, those funds can help supplement your income in the slow periods and make your situation a bit more in line with somebody whose income is steady and regular.
One of the key benefits you get in a regular job is sickness pay, but if you’re too sick to work when you’re self-employed this usually just means that you are not earning. Over a week or two this is hopefully just an inconvenience, but over any longer period it means you have suddenly lost your income. There are insurance products such as income protection insurance and sick pay insurance you can take out to protect against this possibility and replace the sick pay you would get if you were employed. These will pay you an income – either a fixed amount (sick pay insurance) or a percentage of your usual earnings (income protection insurance) – for a certain period or until you are able to work again. Most commonly, the policy will pay out for up to a year but shorter and potentially longer periods are available.
Another of the most useful financial benefits that the employed get and the self-employed don’t is a workplace pension. Even if retirement seems a long way off, this will prove very important one day and could impact on your quality of living when you retire quite significantly. For this reason, you will probably want to replace your workplace pension with a private pension. This may not be a priority when you first go self-employed, but you will probably want to get around to it sooner or later. Any workplace pension pot you have already accumulated should be eligible for transfer into a private fund. You will lose the benefit of employer contributions, but should still have your own input topped up through tax relief.