The crushing effects of the economic recession and soaring unemployment levels, have meant an increasing number of people are choosing to take the plunge and go self-employed. Going solo offers many benefits, but also entails a requirement to commit to increased levels of personal financial responsibility. When employed by a company, it’s easy to underestimate how much the employer does behind the scenes; self-employed individuals are entirely on their own. Staying within the law, and managing personal finances effectively, is all part of the package.
Personal finance options for self-employed workers
Finances need to be carefully monitored and planned to avoid any problems arising. In the same way a healthy cash flow is the lifeblood of a growing business, self-employed individuals need to ensure they have access to funds throughout the month. Most self-employed individuals carry out their service before payment, which usually comes at the end of the month. This means there is often a significant gap, where money can become stretched. Some months naturally attract more work than others; so good financial planning is essential.

Plan and budget

To avoid running into personal finance problems, individuals should create a clear business plan, and know exactly how they plan to manage their income. A certain percentage should be saved each month to cover for occasions where less work is available, pay for essential bills, and cover for unplanned expenses, such as a car breakdowns. This will make it easier to cope during poor months. Strict budgeting is required, and keeping track of all incomings and outgoings will help individuals understand their financial position in real-time, and act if it becomes an issue.


Planning for taxes is also important. Individuals need to keep an extensive record of all business expenses they wish to claim for, and fill out their tax return before the deadline to avoid running into expensive fines. Most self-employed people also have to consider class 2 National Insurance contributions, which are currently set at £2.65 a week. If anticipated earnings for the year fall below £5,595 in a year, it’s possible to get a Small Earning’s Certificate, which – if granted – excuses the individual from having to pay.

Increased vulnerability

Another downside to being self-employed is increased vulnerability. Illnesses and injuries can strike at any time, and self-employed individuals are not entitled to sick pay. Holiday pay is also non-existent, and many people have inadequate insurance. To combat these – and other problems – many self-employed individuals choose to use an umbrella company. These companies offer short-term contracts, providing access to the benefits anyone in normal employment has. The company can then manage the individual’s business administration, offer regular wage payments, and provide benefits such as sick and holiday pay. They drastically reduce the admin demands self-employed people face, and can also provide extensive insurance coverage.

Managing personal finances when self-employed can be complicated, but the opportunity to get out and earn money on your own behalf at a time when many trades are in heavy demand, is undoubtedly appealing. Umbrella companies do charge a monthly fee, but a large number of the self-employed are finding that this is well worth paying for the extra simplicity and support it provides.

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