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If you are self employed, it is likely that your income will vary from month to month. This can make it difficult to add to your savings, as you cannot guarantee earning a set amount each month. However, the precarious nature of being self employed means that having savings is even more important to give you something to fall back on if your self employed earnings are low for several months or longer. In addition, you do not have the luxury of being involved in a company pension scheme or a pension scheme in which your employers match your pension contributions. With this in mind, how can you increase your savings when you have no regular income coming in?

Saving a Percentage Of Your Income

Unless your financial situation is exceptionally tight, experts suggest that you save a set percentage of your income every month. This is typically around ten per cent, which enables you to add to your savings without compromising your outgoings and landing you in debt. If you have additional money left over after paying for your outgoings, it is a good idea to put some extra into savings that month. This avoids the possibility that you will simply send the money on non-essential items, and also means that there will be more in the savings to fall back on if you have lean periods in the future. As a self employed person with no set income, it pays to be prepared for these types of situations as they could otherwise result in debts if you have no savings to fall back on.


Saving For Your Retirement

Saving enough money to live comfortably during your retirement is recommended for everyone, but this is especially important if you are self employed as you may not be entitled to the same benefits as full-time employees if you have not paid enough in National Insurance contributions in the run-up to your retirement. To receive a basic state UK pension, you need to have paid National Insurance contributions for between 39 and 44 years prior to retirement. Women can claim a basic state pension after ten qualifying years of having paid National Insurance contributions, but this will only entitle you to 26 per cent of the full amount. Likewise, men can qualify after eleven years of having paid National Insurance contributions, but will only receive 25 per cent of the full amount. It goes up on a sliding scale, so twenty-two qualifying years (twenty for a woman) will entitle you to 50 per cent and so on. Forty-four qualifying years (thirty-nine for a woman) is necessary to claim the full basic state pension.

For self employed business owners, fluctuating earnings can mean that you do not have enough qualifying years, especially if you have opted out of National Insurance contributions due to low earnings in certain years. If this is the case for you, it is especially wise to have a savings fund to tide you over in retirement as you will not be eligible for a basic state pension in its entirety. However, this will not come cheap. Experts suggest that the average man will need as much as £90,000 to see him through retirement, while for women this is even higher at £100,000. If you do not qualify for basic state pension, this will need to come out of your own pocket to a large extent.

The Pensions Advisory Service suggests that up to 39 per cent of self employed in the UK are not saving anything towards their retirement. This may be because many people feel that they do not need to start saving towards retirement until it is fairly imminent, or that they are not earning enough to justify putting some of it in a retirement fund. This is actually something of a myth as postponing additions to your retirement savings can mean that you do not have enough to live on after retirement age.

Another consideration is the fact that retirement age in the UK is set to rise from the current age of sixty (for women) and sixty-five (for men). By 2045, retirement age is expected to be sixty-eight. If you are looking to retire before this, you will need to have personal savings to fall back on until you can start claiming basic state pension at the official retirement age.

Even if you will qualify for the full basic state pension, it is worth remembering that this only amounts to £84 per week. If this is not enough for your household to live on, additional retirement savings are necessary to 'top up' your pension to an amount that fully covers your living costs.

You can also pay into a personal pension plan, you could find that you actually lose money. This is because the majority of personal pension plans are actually investments, which means that you may not get back the amount that you paid in. This is true of any type of investment. If you do not feel comfortable investing your retirement savings into this type of set-up, it is probably better to pay the money into a savings account and let it accumulate there. Be aware that only £50,000 is protected by the Financial Services Authority (FSA) in each financial situation, so if you were to keep £65,000 in various savings accounts across one single financial institution, the whole of this amount would be at risk if that financial institution got into difficulties. Therefore, if you have more than £50,000 in savings, it pays to spread it across several different financial institutions to minimise the risk of losing all of your money.

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