Top 5 Tips for Managing Your Income and Finances When Self Employed

tips for self employed

Being self employed has a wide range of benefits from working the hours that you want, working from home and providing more freedom to work around other commitments. But becoming self-employed is a big commitment, especially when it comes to taking charge of your finances with no accounts or HR teams to fall back on.

Here’s a few tips and services that you might find useful if you are planning on taking the plunge to become self-employed.

Income Protection Insurance

Being self employed means that you are responsible for your own pay, so when it comes to illness or injury and you must take time off, you aren’t entitled to benefits like Statutory Sick Pay (SSP). This can become an issue if you are unable to work due to illness or injury. A couple of days might not have a huge impact but if you are having to take an extended period without working then that can have a big effect on your finances.

Even when not working you will still have bills and expenses for essential outgoings to pay such as mortgage payments, nursery fees, household bills etc. This is where Income Protection insurance comes into play and can provide a financial safety net.

Income protection insurance can provide an income if you’re unable to work through sickness or injury. It’s designed to protect you financially if you’re unable to work for medical reasons, especially if you end up being off for a long time. It covers you for most illnesses that would leave you unable to work like back injuries, cancer or accidents that would leave you unable to do your job etc but would exclude pre-existing conditions.

One big benefit of Income protection insurance is that it can provide more sufficient, longer-term protection employed sick pay or  statutory sick pay. So you wouldn’t have to turn to savings or other sources of income if you become unable to work.

Leading Hampshire-based life insurance broker have created this dedicated income protection for self-employed workers guide if you require more information or wish to compare quotes.

Like most insurance policies the cost will vary depending on several factors like age, lifestyle, general health and of course your occupation. Other factors would include the level of cover you choose to take out.

Do I need Income Protection Insurance?

If you don’t have income protection insurance, you are running the risk of being unable to keep up with the cost living and being unable to pay your essential bills if you lose your income through illness or injury. Being unable to work can have a huge financial impact, particularly for the self employed so Income Protection Insurance can help relieve some of that financial burden.

self employed finances

Keep Your Personal and Business Finances Separate

Whilst there are no set rules about using one single back account for both your personal and professional income and outgoings, there are significant benefits in using two separate accounts for your finances. The main being that having a dedicated account for your business makes it much easier to keep on top of your business finances. You don’t have to trawl through bank statements to work out your personal and business-related expenses. This is especially useful when it comes keeping records towards the end of year self-assessment tax return.

Pay into a private pension

Whilst focussing on the day to day needs of your business and current goals, it’s often easy to forget about planning towards the future, particularly retirement. Being self-employed means that you don’t have a workplace pension to pay into or employer pension contributions.

Your UK state pension is based on your National Insurance contributions and at the moment (2021) the full amount of the state pension is currently £175.20 per week. However, it doesn’t necessarily mean that you will be eligible for the full amount.

That being said, you can always start preparing now by paying into a private pension. You can find out more information regarding self-employment and pensions at Your Pension

Record Keeping

It is important to keep records of your business income and expenses as soon as your business begins so you can complete your accounts. This includes keeping track of what you’re charging customers for your goods and services, as well as any business-related expenses.

Make sure to keep business invoices, receipts, and bank statements etc for five years after the relevant tax return submission deadline.

Set aside funds for your tax payments

It is best to try to set aside funds each month from your income so that when the end of year self assessment tax bill is due, you will have some money if not all to put towards the tax bill in January.


  1. I’ve recently become self employed – I must look into pension options. This is a really helpful post.

  2. […] often a prerequisite of a mortgage offer that you have insurances in place such a life insurance, income protection and critical illness cover. Requirements will vary between mortgage lenders, but life insurance is […]

  3. […] they’re officially chosen, the IP is generally responsible for investigating the company’s financial affairs and preparing a report for the creditors, which details the company’s assets and liabilities, […]

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