If you’re self-employed, you might have let out a little cheer on Wednesday after the Chancellor announced the forthcoming budget.
For once, savers are being rewarded. In particular, young savers. And as copywriting is (so I’ve heard) a young person’s game, this should come as welcome news.
But young people are also renowned for not saving, and I’m interested to see if this stems to freelancers.
As a self-employed person, I would find it incredibly hard to operate without savings. Projects come and go and there’s no reliability in the same way as with full-time employment.
Once you embark on a career path comprised of ups and downs, it’s common sense to put a little away in the fruitful months to help you through the barren ones.
For me, saving is inbuilt from childhood. But as I’ve followed my path into freelancing, I truly appreciate the value of having a safety net to catch me – for example if work became thin on the ground, or I needed to move flats and had to pay 6 month’s rent up front (when self-employed, it’s hard to get a property otherwise).
Lifetime ISA: a lifeline
Interest rates have been somewhat dismal in the past eight years since the recession kicked in. But the government’s proposed Lifetime ISA could well provide lifeblood to those ailing savings.
For those who weren’t paying attention, the Lifetime ISA is specifically for young people (anyone under 40 – thank you George!). It pays a handsome 25% interest rate on deposits up to £4000 per year and you can use it for a mortgage or your retirement. They’d rather you kept it in until you were 60; however, they’re looking into ways you might be able to take money out and repay it.
Either way, this is good news for freelancers, especially those just embarking on self-employment who will be earning a very modest wage.
Freelancing: the disadvantages
Like everyone, we benefit from the increase in the personal allowance, but not from employer sick schemes, bonuses, wage rises, holiday pay, and the recent pension auto-enrolment with employers forced to pay in for employees. All this is left up to us.
And because our wage can be considerably lower than most full-time jobs, especially when just starting out, cash ISAs don’t do much for us with their dwindling rates at a stagnant 1%.
The Lifetime ISA, however, will reward those who can’t afford to save a huge amount with a very generous rate, making the future look not quite so gloomy.
You do the maths
If you could save just £50 a month, you’d earn £150 in a year from the government; pay in the max of £4000 a year and you’d get £1000.
That money then goes on to accrue year on year, giving you a firm foundation for retirement. This new ISA also promises to be easier to manage than a pension, and more transparent.
Save for your future today
If you’re a freelancer who doesn’t have savings, now might be a good time to start paying some interest, in order to get some back in return.
The Lifetime ISA doesn’t come into effect until April 2017, but in the meantime, you could start saving in a high-interest current account (see TSB or Santander), which will give you regular rewards on your cash, helping you accrue some capital for when it does come into effect.
Take it from me and my own experience, it’s always worthwhile having a little money in the bank because you never know when you might need it.