This year has been particularly difficult for the freelance community.
Our incomes have been slashed by an average of 30 per cent, and horror stories of wiped-out businesses and zero government support are rife. Plus, tax bills are looming in January which may well bear no relation to our much-reduced earnings.
On the face of it, this doesn’t seem like the obvious time to be holding an IPSE webinar about the need for young freelancers to start considering their long-term finances. Surely right now, it is all hands to the pump, and bye-bye any plans for our pensions and investments?
I totally understand this argument. Thousands of freelancers continue to be trapped in a living nightmare of being stopped from working but denied any proper support. Whereas the argument that ‘there’s only so much money’ might have seemed rational at the start of the crisis – the self-employed understand the importance of balancing the books more than anyone - to keep starving so many freelancers of the financial lifelines offered to big business and employees (when restrictions are still with us) now seems perverse, cruel and discriminatory.
The danger is that we end up in constant fire-fighting mode. Raiding our savings, borrowing from whomever will help us, fighting to keep our once-thriving business alive… as much as this all makes sense in the current climate, freelancers face the very real risk of being permanently poorer as a result of this crisis.
When everything is so uncertain, how can we possibly make any long-term plans? This surely is the most unnerving and stressful situation a freelancer can find themselves in. Even I - relatively in-demand during this crisis - have had moments of insecurity, worry and despair about what my freelance future holds.
As a financial writer, I am well-aware of the need to have an informed and balanced attitude to risk. Finance, as with life itself, is innately risky. We can’t avoid risks, but we have to navigate them intelligently, taking calculated leaps of faith without being unduly reckless.
So, it frustrates me to see how much this crisis has warped our view of risk, conditioning (and often forcing) people to focus exclusively on what’s in front of us. The future will happen, and we all must keep taking decisions that will help us prepare for it. Not thinking about the long-term is actually the single biggest risk we can take.
As hard as it is to envisage right now, there will be a time when Covid-19 no longer dominates our lives and we can get back to some semblance of normality. But if we start thinking about our overall financial needs then, it may be too late.
Furthermore, there will be many freelancers who (like me) will have been fortunate enough to stay busy, or who have smartly pivoted into other skillsets or fields. They’ll have benefitted from the Self-Employed Income Support Scheme and may find that restrictions have led to a simpler lifestyle, less spending and extra space for saving/investing.
Many entrepreneurial young people are grasping the need to invest as well as save so their hard-earned money isn’t eroded by ‘reckless conservatism’. As we plumb the depths of interest rates – with the base possibly going negative for the first time – we’re realizing that savings accounts can’t be our only option.
Of course, saving matters and we should always keep at least a few months’ worth of income in an easy access account. But investing is how we can truly grow our money in the long-term so we can fulfil important goals and create more freedom and opportunity for ourselves.
Just think: if you had started putting £100 a month into the UK stock market in the summer of 2005, by this summer (despite the big crash of 2008 and the other big one this spring) the pot would have grown to just under £25,000. That’s around a third more than in an average savings account.
Holding shares over any 30-year period since the beginning of the 20th century has delivered an annual return averaging 6% – and that’s after inflation.
History shows that the stock market is an epic engine which can drive our money harder than anything else – but only if we stay on board for at least five years. There are no guarantees with investing, and our money can go up and down, with the risk that we might not get back what we put in. But as with life, it’s about managing these risks to increase our chances of meeting our goals.
Young people are also starting to grasp how the stock market powers our pensions, which are invested in a range of assets over the long-term to build a pot of money that will – one day – allow us to retire. The problem is that this won’t happen without our regular contributions, and the self-employed must be even more proactive when it comes to pension saving than the full-time workforce, who are automatically enrolled into workplace pensions.
Thankfully, the self-employed can open a private pension or a National Employment Savings Trust (NEST) scheme and benefit from tax relief, but they can also open a dual Lifetime Isa if they’re under 40, using it initially to save for their first home before converting it into an extra retirement fund. This comes with tax-free status and a bonus worth up to £1000 a year from the government. I say: take whatever help you can get!
Of course, freelancers must prioritise stabilising their cashflow, paying off any costly debts and building short-term savings before they embark on any ambitious investment plans. But they may be surprised at how easy it is to start a fund for the future.
You can invest with a robo-adviser if you’re time-poor and looking for something of a shortcut, which will suggest a pre-packaged investment portfolio based on your attitude to risk and goals. Alternatively, you can manage your own portfolio through an investment platform. That way, you can pick funds and investment trusts actively managed by investment gurus, or passive and exchange-traded funds that cheaply track the stockmarkets. Alternatively, you can pick out your own suite of shares, bonds, and other assets if you want to take on the research and responsibility yourself.
There are many investment platforms out there, some more explicitly targeted at beginner investors than other. But it’s important to stick to mainstream options you can understand, diversify your portfolio, and stay focused on the long-term. There is a huge difference between investing and gambling: don’t fall for the get-rich-quick narratives surrounding the likes of cryptocurrency, forex, derivatives, and fractional trading.
The final question, then, is what should you be investing for? Well, apart from your retirement (which trust me, you’ll want to take up, even if you love your work!) that’s really up to you. You may dream of scaling up your business one day, taking time out to look after family, or going back to university one day.
It’s your life – you write the script. The point is that you need to hold onto your dreams, however bleak or uncertain the coming months may seem. Gloria Steinem once wrote dreaming is a form of planning – so don’t ever stop thinking ahead, preparing for, and believing in a better future. It’s what you deserve.
Register for free to Iona Bain's webinar, investing for an uncertain future, here. IPSE is running a month of free financial advice for the self-employed, which you can find out about here.
