Self-Employment: Protecting Yourself Financially

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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.

Accessible Funds

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.

Sickness Protection

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.

Retirement

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.



The Things Credit Cards are Best for

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Some people swear by credit cards, others swear at them and stay away. Out of the first category, some people use them wisely and gain a real financial benefit while others use them poorly and end up paying more interest than you have to, possibly even damaging their credit score in the process.

Credit cards are better for some purposes than others. Some of the best ways you could make use of them to enhance your finances instead of hindering them include:

Spread Costs With 0% Only

Sometimes we don’t want to spread the cost of a large purchase because we can’t afford to make it all at once. Sometimes it’s just nicer to pay in instalments rather than hand over all that money at once. The problem is that paying in instalments almost universally inflates the price tag, as it is essentially a loan. This means you can’t spread the cost out of convenience without paying for the privilege, and if you actually can’t afford to pay all at once then you are stuck with paying more. This is where the plethora of 0% offers on the market come into their own. They are a great way to spread the cost without paying any extra in the long run, whether it’s because you need to or just because you want to. Use a comparison site to find the best 0% deals, and see if the lender’s website offers an eligibility checker that won’t harm your credit rating before you apply.

Improving Your Credit Score

Improving your credit score can be useful for obtaining anything from a mortgage to a small personal loan or even just a better credit card. Having a card is one of the more useful ways to improve your credit score, or to build one up in the first place if you have never borrowed before and have very little credit record. The main way that companies judge your worthiness for credit is to look at previous borrowing, and without credit card the only way to really pull this off would be to take out a loan of some kind and then pay interest on it just so that lenders in future could see that you made the repayments. With credit cards, you have a ready source of borrowing in your pocket which can be used on a whim in a normal shop. Rather than borrowing a large sum of money, you can borrow enough to pay for your weekly shop, a bigger purchase you would have bought anyway, or even the odd little item. Then pay it back promptly with no or negligible interest, and build up your credit record ready for that mortgage you really want to take out.



Getting the Best Deals on Credit

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Used properly and responsibly, credit can be useful for a wide range of purposes, from spreading the cost of large purchases to plugging a gap in an emergency. However, there are a lot of different credit products around from a number of different providers, and borrowing costs can vary very widely. There are a number of steps you can take to ensure you get the most affordable deal possible when borrowing.

Get Your Credit Rating in Shape

The better your credit rating, the more likely you are to qualify for the best deals. If in doubt, there are a number of things you may be able to do to improve your score, potentially even at fairly short notice. Looking at your current report and then taking steps to improve it can be a useful first step in finding the best deals on credit.

Know Your Options

Some credit products overlap in terms of the amount you can borrow, but offer very different rates. Credit cards offer 0% offers which can be extremely useful, but are otherwise expensive forms of borrowing compared to many alternatives. Payday loans – which are usually best avoided – can be used for a similar amount of borrowing but carry interest rates so high that even the worst credit cards look negligible. Look into different forms of credit and choose the one that fits your needs at the best rate.

Shop Around

As with so many things, it is best to shop around in order to find the best deal. Many lenders offer finance products of the same kind and which are almost identical except for having wildly different rates of interest. When looking at personal loans, check not only the offerings of different providers but also different amounts of borrowing. Lenders offer better rates the more you borrow, so if you are near a threshold it may be that you can increase your borrowing slightly in order to unlock a better rate and ultimately be better off.

Pay Back ASAP

Assuming there are no early repayment penalties, paying back early is one of the best ways to reduce the total cost of borrowing. The sooner you pay back, the less time interest will have to build up and the less you will ultimately pay for the loan. If your intention is to spread the cost of something, then there may be a balance to strike, but on the whole it is definitely a good idea to repay early if possible. Make repayments above the minimum if you can, and try to repay it as soon as you can without putting yourself under financial pressure.


Peer-to-Peer: A Brief Introduction

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With Peer-to-Peer (P2P) Lending ISAs fast approaching, it is likely that many more people will start considering this kind of investment.  Some may be those who are altogether new to investment and keen to get more out of their savings. Others may be more experienced investors who have never seen a need for P2P in their portfolio, but have been attracted by the prospect of tax-free status. If you are considering putting money into P2P once the new ISAs are launched, there are a few basic facts you need to know.

What is P2P?

Peer-to-Peer companies specialise in matching people who want to borrow money with those who want to invest. Through the intermediary of the P2P lender, you simply provide your funds to a borrower and they pay you back with interest as they would any other loan. As interest rates on loans are much higher than on savings accounts, P2P firms can offer both competitive rates to borrowers and attractive returns to lenders while still taking a cut for themselves.

Exact rules vary between providers, but it is possible to start lending with as little as £20 or even less. This is because many loans are essentially “crowd funded,” with a number of investors clubbing together to make up the total amount the borrower has requested. Obviously you will have to invest far, far more than £20 to see worthwhile returns but having such a low limit is useful for those who want to test the water with minimal exposure in the beginning.

How Risky is It?

One of the attractions of P2P is that it is considered a fairly low-risk investment, especially for the levels of returns that are on offer. It has been described as “not much riskier than a bank,” making the upcoming P2P ISAs all the more attractive to those who are essentially seeking an alternative to a cash ISA. Most P2P platforms have policies in place to ensure you get your money if a borrower doesn’t repay. You can usually see information about a borrower’s credit history or some other indication of risk level, such as a grade assigned by the P2P platform, so that you can choose a level of risk you are happy with.

However, some experts have voiced concerns that P2P may get riskier after the new ISAs are launched. Currently, many platforms have quite robust criteria for borrower acceptance, or else a clear grading system to help investors identify riskier borrowers. The new ISAs are expected to bring in a lot of new investors, and P2P platforms will have to provide borrowers for them to lend to. If they cannot source enough new business using their current criteria, some fear they may have to lower their standards in order to maintain the balance.


2015: When to Look for Property Bargains

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Are you thinking of getting onto the property ladder in the coming year? Or perhaps you are considering picking up an investment property to boost your savings and hopefully outpace the interest your bank are paying you. Timing can make a big difference to your chances of getting the best price, and there are a few times in the coming year when the odds will probably be stacked a little more firmly in your favour.

Why are Some Times Better Than Others?

This is essentially a matter of demand. Buyers tend to purchase at some times of the year more than others, and these favoured parts of the year become high-demand periods for the housing market. Conversely, the periods that are least favoured see very little demand. This brings down prices, and makes buyers more likely to accept a lower offer in order to secure a sale when they are finding it difficult.

ASAP

One such low-demand period is already underway, so if you are ready to make your purchase you might want to act quickly and seize the opportunity. Buyers tend to be less active in the winter, when cold weather puts them off the idea of viewings, house moves, and potentially doing fix-up jobs on a new property. January is a low-demand period, with February picking up a little but still giving a relatively favourable climate to bargain-hunters. When Spring arrives, things pick up and sellers find it easy to secure a sale without offering lower prices.

The Election

Most predictions hold that it is decidedly better to buy before the general election this year than afterwards. As the country waits to find out which party, and which set of policies, will rule the UK for the coming years, there will be a lot of uncertainty in the housing market. This will put off many buyers, especially buy-to-let investors, who prefer to wait until they know the situation. The result will be low demand and a better chance of securing a property at a good price. When the election is over, it is expected that this pent up demand will be suddenly released, and the housing market will receive a flood of buyers resulting in high competition levels.

The End of the Year

It may seem like a long way off, but the last four months year could be a good time to buy a property. This is true for much the same reasons as the fact that the market is currently seeing low competition. Autumn and, later, Winter will have arrived once again. Demand for properties will drop off after the relatively busy summer period. If you want some time to pull together a bigger deposit, get ready to pass mortgage affordability checks, then the later part of the year could be a good choice. September is often a good time to buy. At this time demand has dropped off reasonably suddenly after the summer, and many people remain on holiday.


Improve Your Chances of Mortgage Acceptance

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Earlier this year, tough new rules were introduced that govern the way lenders grant mortgages. More recently, similar rules were extended to mortgages for buy-to-let investments as well. It is now tougher than ever to have your mortgage application accepted, thanks to the stringent state of regulations and affordability criteria. However, there are a few things you can do to improve your chances of acceptance. Some of the steps you can take include:

Cut Your Spending

The new affordability checks are extremely comprehensive, and designed to consider every aspect of your unique, personal financial situation. For this reason, lenders will probably want to look at your recent bank statements to get a complete picture of your spending habits including things like food shopping. Cutting your spending and trying to be as frugal as possible in the months leading up to your application will make those statements look a lot more positive and will count in your favour.

Get Rid of Debt

If possible, it is wise to get rid of any debts you currently hold. Loan and credit repayments are an important financial commitment and drain on your budget, and naturally lenders will take this into account when assessing your ability to pay back a mortgage. If you are able to pay off any debts you hold, they will be completely removed from the equation and you will be in a better position to have your mortgage application improved.

Boost Your Credit Rating

There are a number of things you can do to improve your credit rating, and it is a good idea to start doing them. A mortgage is a type of loan, and as with any other loan you take out the lender will pay close attention to your credit report. This is a guide to your borrowing history and one of their most valued tools in assessing the way you handle debts and repayments. A strong credit history will really count in your favour when you apply for a mortgage, and a weak one could cripple your application’s chances of success.

Eliminate Regular Savings

In almost all circumstances, building up savings is a road to financial security. However, in some cases it can count against you on a mortgage application. If you have any regular, ongoing saving commitments such as monthly payments into a pension fund, this will be counted as a regular expense and will therefore be seen as a factor that harms your ability to repay a mortgage. If possible, pause such payments until after the process is over.


Four Alternatives to Putting Money in Your Savings Account

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Interest rates on savings accounts and ISAs are disappointingly low at the moment, and this is leading more people to look at alternatives. If you want to get more from your money than your bank is offering, there are a few different things you could try.

Investing

One of the more popular options at the moment is investment. This is for those who are willing (and can afford) to take some risk in the pursuit of getting more from their money. Options such as property investment, stocks and shares or peer-to-peer lending can potentially bring in much more than a savings account. Stocks and shares can also be placed into an ISA so any earnings are tax-free, and next year the same will apply to peer-to-peer lending. However, your capital is at risk and there is also the possibility of losing money. Make sure you understand the risks before entering into any investment.

Premium Bonds

Those who are not so happy with risk and want to get a bit of fun out of their investment could consider buying premium bonds. There is no risk per se, as you can withdraw the same amount of money as you put in at any time. However, premium bonds are a gamble in one sense, because your money will not earn any interest. Instead, you will be in with a chance of winning monthly prizes. You may earn nothing and just have your original funds, or you may earn much more than you would from a savings account. In fact, many bond holders win even less than the interest rate. However, while interest rates do not look like much to miss out on, more and more savers are deciding it is worth a try.

Extra Mortgage Payments

This is a tactic designed for long-term gain at the expense of short-term loss. Initially, you will be worse off in the sense that you will no longer have your money. However, the interest rate on your mortgage is likely to be significantly higher than that on your savings account. By paying extra on your mortgage, you are reducing the amount of interest that your debt will accrue. This will save you far more than you would have earned in savings interest, and ultimately you will be better off.

High Interest Current Accounts

Some banks offer current accounts with higher interest rates than savings products, albeit for limited times and a limited amount of money. In some cases, interest rates after tax remain higher than the average ISA. While the improvement over a savings account is not huge, it is still an improvement. Unlike many alternatives, it also allows you to keep hold of your money and have it readily accessible. This makes a high-interest current an option that is definitely worth considering for at least part of your savings.

 


Improving Your Credit Rating

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Perhaps you want to get a good mortgage, or maybe you simply want to qualify for better rates on credit cards or personal loans. Whatever the case, a good credit rating can be invaluable. There are a number of steps you can take to give your rating a boost. Some are long-term strategies, while others are surprisingly quick.

Look at Your Credit Report

You will be in a far better position to look at your credit rating if you actually have a look over your credit report. This can help you identify where your situation is at the moment, but also see if there are any mistakes. Sometimes, information relating to someone you live with or even a previous occupant of your home can accidentally become attached to your credit report, and this can result in you being falsely marked down. If you don’t identify the problem and request it be corrected, the mistakes will just sit there, unnoticed except for the effect they have on your overall rating.

Borrow

Whether you have actual bad marks in your credit history or are just an unknown quantity with no history of borrowing, the best way to improve is to take out some credit. This is easiest to do with a credit card. Even if you don’t qualify for the kind of credit card deal you want at the moment, take out the best card you can and use it for small amounts of spending. Pay them back promptly, before interest accrues, to build up a reputation as a reliable borrower.

Cancel Old Cards

If you have lots of old credit cards you no longer use, now is the time to cancel them. A lender looking at your credit report won’t be aware that the cards are disused. They will simply see that you have a lot of credit cards in your name, and be concerned that this might mean you are struggling to manage your finances. Making sure you cancel your old cards will noticeably improve your rating.

Know What Goes on Your Report

It is useful to know exactly what does and doesn’t go onto your credit report in order to appreciate which things will have an effect on your overall rating. For example, many people don’t realise that bill payments can appear on their credit report. Late payment of a bill can bring your credit rating down in much the same way as a late loan repayment.