How to Secure Your Financial Future as a Self-Employed Entrepreneur

Are you one of the hundreds of thousands of self-employed professionals that are yet to start saving for a private pension? According to a recent survey by the National Employment Savings Trust (NEST), less than a quarter (24%) of entrepreneurs are actively setting funds aside for their future. There are more than five million self-employed individuals living and working in the UK at present, which means that around four million are not currently thinking ahead to their retirement.

It’s not easy working for yourself. Whether you operate as a limited company or a sole trader, many self-employed professionals experience fluctuations in their income from month to month. What might be possible to set aside for a private pension one month might not be possible the next. Nevertheless, the harsh reality is that many self-employed workers could experience a financial crisis when they reach retirement age. Providing you have made full National Insurance contributions (NICs) during your self-employment, you will be entitled to the state pension that’s currently worth £8,767 a year, but will this be enough to keep you in the style to which you are accustomed?

Whether you are just starting out in the world of self-employment or you are well-established as an entrepreneur, it’s never too late to start thinking about your long-term savings situation. Below are five avenues you could explore to secure your financial future as a self-employed professional:

Look into opening an ISA

During each tax year (6 April to 5 April), you can set aside funds into Individual Savings Accounts (ISAs). ISAs are considered one of the most flexible solutions for entrepreneurs to save for the future. There is a plethora of ISAs available to choose from too, including cash ISAs and stocks and shares ISAs. The latter requires you to invest for the long-term in the stock market, as well as government and corporate bonds. Meanwhile, cash ISAs will grow in line with interest rates, although the value of cash ISAs can rise and fall depending on inflation too.

The maximum you can invest into ISAs during a single tax year is £20,000. More importantly, there is no minimum amount to invest either, which is great for those with fluctuating monthly incomes. You can choose to spread the £20,000 across multiple ISAs or invest it in one ISA. Be mindful not to choose the wrong type of ISA for your situation. For instance, a Lifetime ISA is designed specifically for individuals looking to save for their first property, as well as later in life. However, you can only invest a maximum of £4,000 a year into these until you are 50 years old. The UK government tops up the annual contributions by 25%, but the money can only be accessed to put towards a property acquisition. Otherwise, you will have to wait to access it when you are aged 60.

Select a SIPP provider

Self-invested personal pensions (SIPPs) are another alternative for self-employed savings. There are two kinds of SIPPs available – full-service SIPPs and low-cost SIPPs. The former tend to come with increased charges, but they do give you the maximum capability to invest in everything from commercial property and stocks through to hedge funds and investment trusts. Low-cost SIPPs will offer more limited options to invest in but will incur fewer charges as a result.

SIPPs may be a sensible savings solution if you already have active pension schemes from previous employment. Using a SIPP, it’s possible to combine multiple pensions under one umbrella, allowing you to invest it as one fund, managed online via a dashboard.

Consider nurturing a trading portfolio

Of course, you may like the idea of getting hands-on with your financial investments. In which case, you might be more interested in building your very own trading portfolio, including a mix of businesses, as well as potential long-term positions on indices like the FTSE 100 and forex trading based on currencies such as the pound or the US dollar. In terms of stocks, most experts would recommend that you opt for a blend of cyclical stocks that rise and fall based on the political and economical environment and defensive stocks that are rather less volatile.

Overall, forex markets tend to be less volatile too, which makes them a safe addition to a trading portfolio. The best way to invest in forex is via a broker and trading platform. This list of forex brokers reviews should give you plenty of food for thought, pinpointing everything from minimum deposits and available trading platforms through to minimum spreads and maximum leverage offered by the leading forex brokers.

Buy-to-let properties

Some people feel more secure investing in residential property to fund their retirement rather than stocks and shares. Providing you have enough capital to put down a deposit for a buy-to-let mortgage, it’s possible to achieve rental income on a property that not only covers your mortgage but gives you a modest profit too. Depending on the annual yield you earn from your tenant’s rent, it’s not uncommon to pay off your buy-to-let mortgage over 10-15 years and own the asset outright.

It’s understandable that you might prefer this route as you may feel more in control of property that you own. You’ll have full oversight to set the rental figure and oversee its maintenance to retain and enhance its long-term value.

Consider selling your business as an exit strategy

Last but by no means least, some entrepreneurs look to invest every penny they can into their business, with the long-term vision of selling the business and living off the sale during retirement. Although there are no limitations as an entrepreneur, this could be considered a high-risk, high-reward approach to saving for your retirement. First and foremost, you cannot guarantee that your business will still exist in 10-30 years’ time. Even a year is a long time in business, so you’ll need to be pretty confident in its potential to focus on selling up as your retirement exit strategy.

You’ll need to ensure that your business has something worth selling too. It’s quite plausible that your business could be superseded in the coming years due to technological advancements or changing consumer behaviours.

Hopefully, this quintet of investment strategies will get you thinking about securing your financial future as a self-employed entrepreneur, helping you to save for retirement, plan for emergencies and compensate for any irregular income patterns.

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