Ever fantasised about quitting your boring old 9-5 and becoming your own boss? Well, before you pack it in, you may want to think about some of the more practical elements of being self-employed. Obviously, you need to know what you want to do and how you plan on making money, that goes without saying, here we’re going to focus on the more boring bits of boss-life.
Can I hear an audible groan? Nobody likes doing it, and unfortunately if you’re self-employed there’s only so much procrastination you can do before it catches up with you. Of course, you might be able to outsource some of these jobs, but that costs money and often it will still require you to check up on it.
But it goes beyond admin work like making sure your tax is right. When you’re self-employed you have to do everything – that means marketing yourself, chasing clients for payment, pricing yourself, and of course, doing the work you set up your business to do in the first place.
If you’ve previously been employed, then most of the hard work has been done for you and you have regular amounts put into your bank on a weekly, fortnightly, or monthly basis. When you’re self-employed that all changes – not only do you need to make sure you’ve got the work to pay the bills, but it may not be as regular as you’re used to. For example, say you quit your job to become a landscape gardener, as it tends to be seasonal job and you may have more work on in some months than others. If this is the case, you may want to think about how you spend your money annually.
Beyond the logistics of getting paid, you’ll also need to make sure you’re making your own National Insurance (NI) contributions, paying tax, and saving into a pension. The government website has plenty of helpful guides on how to pay NI and tax, which could be worth a read.
Paying into a pension
We just touched on it, but when you’re self-employed then you’re not automatically enrolled into a workplace pension. You will still be entitled to the State Pension, provided you’ve paid enough in NI, but with the maximum value of the State Pension currently being £185.15 a week as of 2022 (and this being subject to change in future), it may not be enough to sustain the lifestyle you want.
If that’s the case you may want to look at pensions for the self-employed, such as a personal pension or 'Self-Invested Personal Pension' (here's a bit more info on SIPPs). This would let you choose how you want your money to be invested, and could also offer flexibility over payments, letting you contribute in a way that works with any seasonal fluctuations.
Setting your price
How much is your time worth? It’s a difficult question, especially if you’re used to salaried work. You want to be able to make an income while being competitive. But then you don’t want to charge too much, as people will think you’re too expensive, while charging too low can put clients off as they assume you’re not as good. It’s also a lot easier to lower prices than it is to raise them, especially from a messaging point of view – “good news, we’re cheaper” vs “sorry, we have to increase our prices”.
You work harder and longer
Being your own boss isn’t a walk in the park. If you’ve been working from home during the Covid-19 lockdown, then you’ll understand how the days can slowly grow until you suddenly realise that you’ve been working 10-hour days for the last few weeks.
It’s really easy to fall into the trap of not having a good work-life balance, and there’s nobody there to tell you off for working too long (unless your partner takes up this mantel). Unfortunately, this can eat into your time to do things that you enjoy which means the last thing you want to do is more admin. Luckily with Wealthify you can sort your pension out in a matter of minutes, and our team of experts will do everything for you – including applying the tax relief on your contributions – leaving you more time to do the things you enjoy.
Your tax treatment will depend on your individual circumstances and it may be subject to change in the future.
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.