It’s hard to manage financial security when you’re self-employed

It’s hard to manage financial security when you’re self-employed

Report after report, financial instability an uncertain income are cited among the top challenges reported by the self-employed. In fact, 50% report being concerned about the irregularity of their income or unpredictable finances and 33% admit to not being able to get financial support due to their self-employed status (Demos Free Radicals report).

So basically, half of the self-employed admit that their irregular income presents financial issues, but they aren’t able to get the support that they need from banks. This is unfair and, quite frankly, stinks.

What is financial security?
Financial security means having financial peace of mind and not worrying about your income being enough to cover your expenses. Generally, it’s having enough money saved to cover unexpected emergencies and longer-term financial goals.

When you’re financially secure your stress levels go down, which means you have the breathing room to focus on more important things.

What causes financial insecurity
To have some level of financial security, your income should be more than your expenses. But when you’re self-employed your income is unpredictable, despite the fact that your bills come with impressive regularity. In fact, more than 1 in 10 of UK adults say their income changes significantly from month to month and almost 50% of self-employed professionals in the UK admitting to being concerned about the irregularity of their income.

Now, irregular incomes wouldn’t be an issue if more people were able to save; to build financial resilience for when work is quiet or to deal with unexpected expenses. But families are spending more than they earn; few have little or no financial buffer when things go wrong. This is because family budgets are stretched, with nearly 1 in 10 (9%) of households spending at least 80% of their income on essentials like food, housing and fuel.

But unexpected events occur to us all at some time or another. The car breaks down. The computer crashes. The tax man sends a surprising letter that you weren’t expecting… We’ve all been there, but it makes it hard to manage the fine balance of incomings and outgoings.

So what can you do?
This can mean having to borrow money to get by. But relying on credit comes with risks, particularly for those who can’t predict what, or when, their next pay cheque will be.

The irregular nature of self-employed income means that it can be difficult to demonstrate credit-worthiness to financial institutions (banks just assume that you are riskier than an employee), and even if you can get credit it’s likely more expensive. Pricier credit further reduces the gap between income and expenses which makes you even more financially unstable. This leads to even less breathing room, less time to make important financial decisions and fewer options in general.

Before you know it, the odds become stacked against you and the downward spiral of stress begins. And this isn’t just an issue for those on lower incomes. Even those on higher self-employed incomes find themselves ill-prepared when having to manage income gaps and unexpected life events.

It doesn’t have to be that way
You can’t just snap your fingers and become financially secure. We wish. But we believe that there are a few things that can help:

1. Smooth your income across busy and slow periods. This may mean bringing home less money when you’re really busy and business is going well, but averaging out your pay across the year can pay off when things are quiet or you need to take some time off unexpectedly.

2. Have credit work for you. Be prepared with a safety net before you need it. Look at affordable credit options so that you don’t find yourself having to rely on predatory payday lenders or unarranged overdrafts when something happens.

3. Build a savings buffer. Try saving a portion of your income towards savings. Even better if you can save it in different pots so that you can save for different objectives, like end of year tax, saving for time off or even a rainy day.

Every little bit helps, and differentiating your savings objectives means that you may not need to use up all your end of year tax savings if you find yourself needing to take a couple of weeks off work.

At Trezeo, we recognise that the self-employed need better.
You shouldn’t be punished with financial insecurity just because you work in a different way. So we provide affordable credit to provide our self-employed members with peace of mind, help you automatically build savings buffers to build your financial resilience and smooth your income so that you don’t need to stress when work is a bit quiet.

We’re building the financial safety net for the self-employed. If you’re self-employed in the UK, we’re here to help.

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