Angellica Bell: Hello, and welcome to Rewirement, the podcast where we help
Angellica Bell: you make the right connections to create your brightest financial
Angellica Bell: future, brought to you by Legal & General. I'm Angellica Bell,
Angellica Bell: and during this series, I'm trying to find the answers
Angellica Bell: to as many questions about managing money as I can.
Angellica Bell: To do that, we found people from all over the
Angellica Bell: country and from different walks of life who need information
Angellica Bell: about their finances. Asking things like, how much should I
Angellica Bell: be paying into my pension? Where's the best place to
Angellica Bell: put my savings? Or what kind of insurance do I
Angellica Bell: need for peace of mind? We've paired them up with
Angellica Bell: some top financial experts to give them some guidance. And
Angellica Bell: we get to listen into those conversations, which means I
Angellica Bell: hope, that we all learn something along the way. Now,
Angellica Bell: if you work for a company, big or small, the charges
Angellica Bell: are that you get paid annual leave and sick leave,
Angellica Bell: you'll be enrolled in a pension scheme, you might even
Angellica Bell: get private healthcare. All your national insurance and tax payments
Angellica Bell: are calculated for you. And if you think you'd like
Angellica Bell: to buy a house, you have a nice collection of
Angellica Bell: pay slips to prove your salary. But more and more
Angellica Bell: people these days are working for themselves, freelancing in the
Angellica Bell: gig economy, starting their own business and being their own
Angellica Bell: boss. Now, it can be exciting and rewarding, but there is
Angellica Bell: a downside. All the benefits of having an employer disappear,
Angellica Bell: no company pension scheme, no payroll and if you don't
Angellica Bell: work, you don't earn. Sometimes people are so busy keeping
Angellica Bell: their business going, they don't have time to make sure
Angellica Bell: they've got their own finances sorted. Today we're meeting someone
Angellica Bell: who might identify with that problem. So let's welcome, Jesse, hi.
Jesse: Hi.
Angellica Bell: So tell me about your business. What is it and how's it going?
Jesse: It's going well.
Angellica Bell: Which is great.
Jesse: Yeah, minor blip with COVID, but we're doing well. So
Jesse: I run a travel consultancy, helping small hotels and travel
Jesse: companies get their name out there.
Angellica Bell: So you seem like a real entrepreneur then, as I
Angellica Bell: understand it. But you have a few worries, because obviously
Angellica Bell: you are working on your own and getting your business
Angellica Bell: out there. And like you said, we had a few
Angellica Bell: blips in life, so you never know where things are
Angellica Bell: going to be.
Jesse: Yeah. COVID was a big blip. Obviously, travel got shut
Jesse: down within 24 hours. I lost all my clients within
Jesse: 24 hours.
Angellica Bell: Oh my God. How did that make you feel?
Jesse: Didn't made me feel great. I'm not going to lie.
Jesse: It was a real shock to the system. We'd obviously
Jesse: just got the business to a really strong place. It was
Jesse: way worse for my clients than it was for me.
Jesse: Obviously my income stopped immediately, but I didn't have loads
Jesse: of overheads. But I was suddenly completely unemployed, needed to
Jesse: figure out how to pay my rent and it was
Jesse: like that probably for about five to six months.
Angellica Bell: And I think this is what, we're highlighting with this.
Angellica Bell: When you're working for yourself, something happens, you don't know
Angellica Bell: what's around the corner. Then all of a sudden, all
Angellica Bell: that business, all forecast you're expecting for the next few
Angellica Bell: months, gone.
Jesse: Completely gone.
Angellica Bell: Okay. Well we're through that, and business is in a
Angellica Bell: good place. It's obvious that you're very entrepreneurial, you are
Angellica Bell: driven and you're successful. You got that bit sorted. But
Angellica Bell: there's another side that you haven't got sorted, which lots
Angellica Bell: of people feel the same about, but don't necessarily admit.
Jesse: Yeah, absolutely. I mean the business is doing well. Creatively
Jesse: I'm really confident. If you want to open a hotel,
Jesse: I'll tell you exactly how to do it.
Angellica Bell: I'm going to call you when I do.
Jesse: Yeah, please do. But, I'm 33 years old. I own
Jesse: my own business. A lot of my friends are a
Jesse: lot further ahead than me owning their own houses. They've
Jesse: got investments set up, and I'm just not in that
Jesse: position. It feels like everyone seems to know the answers,
Jesse: but I absolutely don't and a lot of people are giving me different advice
Jesse: from all over the place. It's just a bit confusing.
Jesse: Be really good to have some advice that can just
Jesse: help me along the way.
Angellica Bell: Well, Jesse do not worry because help is at hand.
Angellica Bell: We found someone to give you some guidance on finding
Angellica Bell: your way through the money maze. Peter Komolafe is a YouTuber, a podcaster and TV
Angellica Bell: contributor, and a qualified financial advisor. He's really, really good.
Angellica Bell: And when you met, he started with some reassurance.
Peter Komolafe: Look, it's completely natural for people to feel as though
Peter Komolafe: I have no idea where to begin. We don't get
Peter Komolafe: taught it in school. This is where I'm going to
Peter Komolafe: give you hopefully a little bit of clarity around some
Peter Komolafe: of your areas. So savings, pensions, property. Do you have a
Peter Komolafe: priority among those three? Which one pulls you the most?
Jesse: I obviously get advice from a lot of my friends.
Jesse: Most of them own property and they're all financially quite
Jesse: savvy and I don't, I rent a property, and it
Jesse: was always meant to be property, I think. And then
Jesse: obviously you sit next to someone at dinner and they
Jesse: go, you haven't got a private pension, have you lost
Jesse: your mind? And you start panicking. I don't think I even
Jesse: have a state pension, but for me it was always savings
Jesse: that were for a property. And then it was also
Jesse: going to be sorting out a private pension. But then
Jesse: recently I've been told, why are you worrying about a
Jesse: pension, pensions aren't going to exist when we are old,
Jesse: put your money into property. That's the cleverest thing to do.
Peter Komolafe: That gives me really good insight. There are a lot
Peter Komolafe: of misconceptions when it comes to pensions. And oftentimes the
Peter Komolafe: conversation that people will have is, you do property or
Peter Komolafe: pension, one of the two, I think you can do
Peter Komolafe: both. And there's nothing wrong with doing both. It's going
Peter Komolafe: to be about prioritizing, which one is the most pressing
Peter Komolafe: thing for you? I think the main questions then become
Peter Komolafe: that you'll be asking is, okay, so how do I
Peter Komolafe: get a deposit? Can you get a mortgage as a self-
Peter Komolafe: employed person? How does that all work?
Jesse: Can I ask, am I self- employed? As a director
Jesse: of my own business, does that technically still qualify me
Jesse: as self- employed?
Peter Komolafe: Well, technically you are employed because you're employed by your
Peter Komolafe: own business. So you'll be employed per se, but you
Peter Komolafe: are a director of your business, so you're taking dividends, and
Peter Komolafe: get y as an income as well, the mortgage side
Peter Komolafe: of things, you will be able to get a mortgage,
Peter Komolafe: no problem, even if you are taking dividends. But I think
Peter Komolafe: the key difference between being self- employed business owner and
Peter Komolafe: employed is the fact that when you go and apply
Peter Komolafe: for a mortgage, from an income point of view, what
Peter Komolafe: they do is they take your salary, and they times
Peter Komolafe: that by a multiple, as a business owner, if you're
Peter Komolafe: taking dividends and income, then the same principle applies, but
Peter Komolafe: it's looked at and treated differently. So typically how it
Peter Komolafe: works with mortgages is you will take your earnings per
Peter Komolafe: year, and you will times that number by four, there
Peter Komolafe: are some lenders that are doing more. Now you've got
Peter Komolafe: some lenders that are doing seven times your salary, but
Peter Komolafe: there's a distinction here within salary and dividends. So salary
Peter Komolafe: is what you get paid. Dividends will be accounted in
Peter Komolafe: a different way, but depending on what you are taking
Peter Komolafe: from the business and how you're taking it, it shouldn't be
Peter Komolafe: a problem, but it may need some pre- planning and
Peter Komolafe: some pre- work to make sure that from a salary
Peter Komolafe: point of view, you are taken enough with dividends being
Peter Komolafe: accounted for it as well. So the mortgage companies will
Peter Komolafe: want to see a track record. So they will typically
Peter Komolafe: ask for about three years in evidence of salary income.
Peter Komolafe: So again, this is where if we are planning this
Peter Komolafe: and we are putting a marker in the sand for
Peter Komolafe: this to happen in X amount of time into the
Peter Komolafe: future, the groundwork needs to go into it with all
Peter Komolafe: of those considerations as well. The dividends can count towards
Peter Komolafe: it, but it depends in what shape you're basically taking
Peter Komolafe: it. And this is where mortgage advisor will be able
Peter Komolafe: to guide you in exactly how to actually structure. So
Peter Komolafe: maybe this is a conversation as well to have with
Peter Komolafe: the accountant as well and say, look, this is the
Peter Komolafe: plan I want to buy property. I know that I
Peter Komolafe: need to show more income. I still want to be
Peter Komolafe: taken dividends, which can be accounted. How do I structure
Peter Komolafe: this correctly in order to do that? But if you're
Peter Komolafe: going to have maybe a one or two year timeline
Peter Komolafe: to actually make this happen, it's putting the groundwork with
Peter Komolafe: all these considerations in mind as well.
Jesse: I think also just from a self- employed point of view, the thing that I've
Jesse: really struggled to get my head around, I don't really
Jesse: have any personal savings, but I have got about 35
Jesse: grand in the business, which is just sitting there. And
Jesse: where I struggle is obviously it's my business, it's my
Jesse: service. And it's my turnover, in my head, I'm like,
Jesse: but that's my money. Why can't I use that money
Jesse: to get on the property ladder? So it's understanding as a self-
Jesse: employed person, that real difference between why that money needs
Jesse: to stay there, and I can't use it from a
Jesse: personal point of view.
Peter Komolafe: As a self- employed person. One of the things that you
Peter Komolafe: have to start thinking about, and this is something I've
Peter Komolafe: had to make a clear distinction on, my accountant has
Peter Komolafe: hammered it right into me is, the business entity is
Peter Komolafe: my business, but the business entity is an entity of
Peter Komolafe: its own. So whilst the money might be in your
Peter Komolafe: business account, yes, it's your business, but the money is
Peter Komolafe: the business entity's money. And in order for you to transfer out
Peter Komolafe: of the business into your personal account, there needs to
Peter Komolafe: be a transaction that takes place. And when that transaction
Peter Komolafe: takes place, tax also needs to be paid upon that
Peter Komolafe: as well. It's a very, very difficult thing to come
Peter Komolafe: to terms with. And I look at it sometimes and
Peter Komolafe: think, do I really want to pay tax on amount
Peter Komolafe: of money that I want to take from the business
Peter Komolafe: when I've worked so hard for the business, for it
Peter Komolafe: to get the money that's in the business, it could
Peter Komolafe: be quite jarring in that way. And I think as well with that, you
Peter Komolafe: also need to think about how you're going to use
Peter Komolafe: the money to actually make more money in the future,
Peter Komolafe: and actually grow that money from a business point of view.
Jesse: Because realistically that pot of money is money that I've
Jesse: earned, and that I want to use to secure my
Jesse: future. If so is it better for me to start drawing
Jesse: more dividends out month by month and taking that money
Jesse: and putting it straight into a personal savings account or
Jesse: leave it there to continue to accumulate money in the
Jesse: business. And then when I'm ready, pull it out.
Peter Komolafe: It really depends on whether you feel that you are going to
Peter Komolafe: need capital within the business. So are there any capital
Peter Komolafe: intensive projects or anything else that you know, for a
Peter Komolafe: fact that there might be a little bit of capital
Peter Komolafe: that you need to have in the business?
Jesse: No, I would never draw it all out, but the
Jesse: thing that I can't get my head around is the
Jesse: fact that it's there and that I can't use it, when
Jesse: I'm sitting here watching all my friends buying houses and
Jesse: I'm like, oh, I've got that money there, surely it
Jesse: should be doing something clever, and it's not, it's just
Jesse: sitting there.
Peter Komolafe: Look, the tax petition is the biggest thing to consider. If you
Peter Komolafe: take it all out, are you happy with the level
Peter Komolafe: of tax that you're going to have to pay, because
Peter Komolafe: that's going to be the main consideration.
Jesse: And would it be a really hefty amount of tax?
Peter Komolafe: Well, that depends on how you take it. Whether you
Peter Komolafe: take it as salary, whether you take it as dividends,
Peter Komolafe: you need to have a look at the scenarios with your accountant,
Peter Komolafe: to say, look, if I increase my dividends by X
Peter Komolafe: amount per month, in order to be able to draw
Peter Komolafe: this money out of the business, what does that look like
Peter Komolafe: from a tax point of view? If you can take
Peter Komolafe: it all out, and it's going to cost you, I
Peter Komolafe: don't know, a couple of thousand pounds versus maybe a
Peter Komolafe: few hundred pounds, it's a big decision to make because
Peter Komolafe: it's a big difference. And you need to know what
Peter Komolafe: those numbers look like. If you saw a property that
Peter Komolafe: you were like, I absolutely want this and you could take
Peter Komolafe: the money tomorrow. Would you? Maybe, if it was something
Peter Komolafe: you were really, really bought into, like, I really like
Peter Komolafe: this property, it's an opportunity, I want to do it.
Jesse: Quite like to buy a camper van, but I don't think that's going to make me any money.
Peter Komolafe: I don't know. Used vehicles these days, the market for those
Peter Komolafe: are very, very healthy.
Jesse: Because then I'm like, well, it's a camper van and I work in travel. So it's a travel cost.
Peter Komolafe: Could you do it as a business expense? Possibly. That's
Peter Komolafe: a conversation to have with your accountant. One thing we haven't
Peter Komolafe: actually spoken about is the fact that at the moment
Peter Komolafe: you are mid 30, so there is actually help out
Peter Komolafe: there via the government. So for example, things like Lifematters, Lifematters
Peter Komolafe: will help you as a first time buyer to get
Peter Komolafe: to a deposit a bit quicker. So essentially how this
Peter Komolafe: works, is with a Lifematter, you can contribute 4, 000 pounds
Peter Komolafe: every single tax year. And for every 4, 000 pounds
Peter Komolafe: that you put in, you're going to get a thousand
Peter Komolafe: pounds free from the government for the purpose of your
Peter Komolafe: house deposit. There are some limitations around where you buy
Peter Komolafe: and property prices. I think the max property value you
Peter Komolafe: can buy is 450,000 pounds, within the London area. It's
Peter Komolafe: a good vehicle to use as a potential to get
Peter Komolafe: you towards a house deposit a little bit sooner. And
Peter Komolafe: obviously when it comes to pensions, one of the unfortunate
Peter Komolafe: things is that as a business owner, you don't have
Peter Komolafe: the automatic cover that you're going to receive than if
Peter Komolafe: you worked for a business, you walk into a business,
Peter Komolafe: a pension is offered to you. As a business owner,
Peter Komolafe: it's your responsibility to provide that for yourself. And it's
Peter Komolafe: something that a lot of business owners have to really
Peter Komolafe: be intentional about setting up. But it's a really important
Peter Komolafe: thing to make sure you have set up within the
Peter Komolafe: business. It can be a business expense, so it can
Peter Komolafe: help you reduce your corporation tax essentially. Okay, now there
Peter Komolafe: is something called, (inaudible) was introduced and that's where
Peter Komolafe: if you were an employer, if you've got employees in
Peter Komolafe: the business, technically speaking, according to legislation, you should be
Peter Komolafe: paying in a certain amount into your pension every single
Peter Komolafe: year. So the number is 8%. So that is 3% from
Peter Komolafe: the business, from the company, then 5% from you as
Peter Komolafe: the employee within the business. So that is the minimum
Peter Komolafe: that you could start with. Your retirement may not be
Peter Komolafe: for 30, 40 old years. So any money that goes into
Peter Komolafe: a pension, you want it to be working as hard
Peter Komolafe: as possible for you. And obviously it is an investment.
Peter Komolafe: So your investment will go up. It will go down
Peter Komolafe: over that period of time. As long as you're happy
Peter Komolafe: with the notion that over the long- term, it should
Peter Komolafe: perform better and get you really, really good returns over that long-
Peter Komolafe: term piece. You're able to manage the investment risk in
Peter Komolafe: how you look at it. You can review it every
Peter Komolafe: single year if you needed to, but doing it via
Peter Komolafe: the business does make sense, because it can help you
Peter Komolafe: reduce your corporation tax.
Jesse: Because I've just hired my first employee, literally 10 days
Jesse: ago. But so am I right in thinking that from the
Jesse: business, I need to look at a pension twofold. So
Jesse: I need to look at it in terms of my
Jesse: private pension that I set up, that's going to be
Jesse: the one that's working really hard and I put most
Jesse: of the money into. And then, and did you say auto- enroll-
Peter Komolafe: Auto-enroll.
Jesse: Pension, and I need to set that up for both
Jesse: me and Laura, and I need to put 3% of our
Jesse: salaries into that. And then Laura can opt in as
Jesse: to whether she adds 5%.
Peter Komolafe: That's right, yeah. So if you are having conversations with
Peter Komolafe: your account, your account can guide you around how you
Peter Komolafe: set up. A lot of businesses will just do something
Peter Komolafe: like Nest for example, is a really, really simple way
Peter Komolafe: to get it done. They are very, very helpful, low
Peter Komolafe: cost. It's a good place to get started. My limited
Peter Komolafe: company, I pay into a Nest pension because I had set one up
Peter Komolafe: for myself, but I also have a private pension as well.
Jesse: With who, who should I set up a private pension with?
Peter Komolafe: There are lots of providers out there. I mean, it
Peter Komolafe: depends on what you prefer really and what you like
Peter Komolafe: in a provider. One of the bigger things that you
Peter Komolafe: really want to be looking at is, fees, cost. Those
Peter Komolafe: will be a really important point for comparison. Some will
Peter Komolafe: be more expensive than the others. Although there are caps
Peter Komolafe: on how much providers can actually charge you, but how
Peter Komolafe: they also invest the money in a pension as well
Peter Komolafe: might be really important to you. If you have certain
Peter Komolafe: ethical views, some providers will have that, others won't. So
Peter Komolafe: when we talk about state pension, you've worked at places
Peter Komolafe: previously, you're running a business currently, you will be accumulating
Peter Komolafe: national insurance years, that will go towards your state pension.
Peter Komolafe: So it's just really important for you to continue to make those contributions
Peter Komolafe: and acquire national insurance contribution years towards that state pension.
Jesse: We've nailed the pension. Apart from my guests, my most
Jesse: obvious blunt question is realistically, how much should I be
Jesse: putting into a private pension per month?
Peter Komolafe: So try and work to the minimum. So 8%.
Jesse: Of my turnover or my salary?
Peter Komolafe: Of your salary, I would say in terms of maximums,
Peter Komolafe: it's really up to you. Pensions are such that you
Peter Komolafe: can be flexible now, so you can pay in monthly.
Peter Komolafe: But also if you have a really good year in
Peter Komolafe: the business, you want to throw in 5, 000 or
Peter Komolafe: 10,000 here and there. You can also do that.
Jesse: When I was saying earlier, oh, everyone was saying that
Jesse: pensions aren't going to be a thing when we're older,
Jesse: surely any money that I have saved into a private
Jesse: pension part, that's my money. And I will get it
Jesse: at some point?
Peter Komolafe: Absolutely, yes you will. There's a lot of misconceptions about
Peter Komolafe: them saying that it's not going to be around, and
Peter Komolafe: it's going to be a waste of time. I always
Peter Komolafe: say to people, it's best to have it as your
Peter Komolafe: backup plan. It's not going to hurt you if you
Peter Komolafe: pay in a hundred pounds, 200 pounds, whatever that minimum
Peter Komolafe: might be in per month, without just trendle in a way, working
Peter Komolafe: a way for you over the course of 30, 40 years,
Peter Komolafe: because that will amount to a pot of money. First
Peter Komolafe: and foremost, under the current legislation, you hit 55. If
Peter Komolafe: you have a hundred thousand pounds in year pension part, you can
Peter Komolafe: take 25 grand completely tax free and people will either
Peter Komolafe: use that to pay off their mortgage or go and
Peter Komolafe: buy a deposit for a rental property, depending on how
Peter Komolafe: big your pot is. But with this as well is
Peter Komolafe: pensions, people often think that pension is going to die
Peter Komolafe: with you. Like you can't pass it off to family
Peter Komolafe: and you know, kids and beneficiaries, actually, that's not true.
Peter Komolafe: You can pass it on. And for the most part
Peter Komolafe: you can pass it on without inheritance tax up until
Peter Komolafe: certain age. So 75 is the main point that where it
Peter Komolafe: cuts off. But if you imagine you have a business
Peter Komolafe: that you might sell or you have other assets that
Peter Komolafe: you might sell, most of those things will be part
Peter Komolafe: of your estate for inheritance tax if you become inheritance
Peter Komolafe: tax liable, but your pension sits outside of that. So
Peter Komolafe: it's a really nice tax efficient vehicle to actually use.
Peter Komolafe: And like I said, as a plan B, there's nothing
Peter Komolafe: wrong with having it, just trying it along in the
Peter Komolafe: background to give you that backup plan, if you will.
Jesse: But plan A should be to buy a house.
Peter Komolafe: I think for you, plan A because it is so
Peter Komolafe: immediate, it will come quicker than retirement. And think about
Peter Komolafe: it this way. When you get to retirement age, you
Peter Komolafe: probably don't want to be in a position where you have
Peter Komolafe: to think about rent, and be thinking about the inflationary
Peter Komolafe: rate of rent as well. You don't want to get
Peter Komolafe: to 60, you've got to pay 800 pounds per month
Peter Komolafe: in rent, the following year, it goes up to eight
Peter Komolafe: 50. You don't want to be in that position. You
Peter Komolafe: probably want to be in a position where you have
Peter Komolafe: no mortgage. You own your property outright. It's an asset
Peter Komolafe: that if you wanted to downsize, you can release some
Peter Komolafe: cash from it. It will give you more options later
Peter Komolafe: on than not doing it at all.
Jesse: So I guess my final question is based on the
Jesse: fact that I'm obviously self- employed, so that doesn't cover
Jesse: anything like sick leave, paying my team's salaries if anything
Jesse: was to go wrong with the business, I don't have
Jesse: business insurance. Should I have business insurance?
Peter Komolafe: This is one of the biggest challenges that a lot
Peter Komolafe: of self- employed business owners actually face. If you don't
Peter Komolafe: work, the business doesn't work really. And it's a big,
Peter Komolafe: big risk. Insurances are there to help with that. There are
Peter Komolafe: things like key man insurance, it covers the key person
Peter Komolafe: in the business. You can pay for it via the
Peter Komolafe: business account. So it's a business expense and what that
Peter Komolafe: does, it covers you as the key person within the
Peter Komolafe: business. So for example, if you're unable to work, accident,
Peter Komolafe: sickness, that kind of stuff, it can then step in
Peter Komolafe: to cover the financial hit that the business would take
Peter Komolafe: for you not being there. It's slightly different to general
Peter Komolafe: business insurance, which is more about if you're going to
Peter Komolafe: a public exhibition. And one of your stands falls on
Peter Komolafe: someone. That's more about public liability. These are very specific
Peter Komolafe: insurance policies to look at. What would be the impact
Peter Komolafe: of say for you for example, Jesse, not being able
Peter Komolafe: to operate within the business now with a staff member,
Peter Komolafe: keeping the business afloat, so it doesn't die.
Jesse: And that would pay, for example, my staff salaries.
Peter Komolafe: You can have policies set up where actually the payment
Peter Komolafe: comes into the business, how you then use that payment
Peter Komolafe: is down to you.
Jesse: Okay.
Peter Komolafe: It is worthwhile exploring those kinds of things. Particularly if
Peter Komolafe: you are worried about the fact that look, if I'm
Peter Komolafe: not in the business for a month or two months,
Peter Komolafe: how am I going to replace the income? How is
Peter Komolafe: the business going to survive?
Jesse: And roughly what are the costs for things like that?
Peter Komolafe: It all varies depending on what level of cover you
Peter Komolafe: go for.
Jesse: Right.
Peter Komolafe: So oftentimes a lot of these will have a monthly
Peter Komolafe: premium that it will, say for example, if you are
Peter Komolafe: responsible for 10, 000 pounds worth of income in the business,
Peter Komolafe: you can have an equivalent of that basically covered. So
Peter Komolafe: it depends on what level of cover you essentially need.
Peter Komolafe: They're not always as expensive as most people think they
Peter Komolafe: are, and if you're going to do it via the
Peter Komolafe: business, it becomes a business expense. So again, it's deductible,
Peter Komolafe: it will help you reduce your corporation tax as well.
Angellica Bell: Well, Jesse, you and Pete covered a lot of ground.
Angellica Bell: And I know you also spent some time talking about
Angellica Bell: saving and investment options as well, but what were the
Angellica Bell: main things you took away from that session?
Jesse: Oh, so much. And I'm so grateful. One of the
Jesse: things that the conversation gave me is a little bit of
Jesse: confidence that I actually do basically know what I need
Jesse: to do, but it's just having the confidence to be
Jesse: able to go and do it. I think also a
Jesse: big thing for me was really defining what I need
Jesse: to do for a personal point of view and also
Jesse: what I need to do with the business. And the
Jesse: fact that I can start paying a private pension out of the
Jesse: business. That's amazing, so yeah, I've got homework and I
Jesse: need to get to it quite quickly.
Angellica Bell: Well, brilliant. Listen, thank you so much for telling us
Angellica Bell: about your financial journey. There are so many people who have
Angellica Bell: learned a lot from hearing your conversation with Pete, and
Angellica Bell: also your own story, which I know is going to
Angellica Bell: continue to grow.
Jesse: Aw, thank you. Hopefully.
Angellica Bell: Good luck.
Jesse: Thank you so much.
Angellica Bell: Being your own boss, running your own business. I mean,
Angellica Bell: there's so much to think about. It can be quite overwhelming
Angellica Bell: and to give us some key pointers on how to
Angellica Bell: handle your own money when you're self- employed. I'm joined
Angellica Bell: now by Matt Frain, a director at Legal & General Financial
Angellica Bell: Advice. Now, Matt, hello.
Matt Frain: Hi, Hi Angelica. How are you?
Angellica Bell: Yeah, really good. And I'm really interested in this topic
Angellica Bell: because I'm self- employed myself. So can you tell us
Angellica Bell: what are the key points we can learn from Jesse's story?
Matt Frain: This is a really interesting and really important topic. The
Matt Frain: UK has nearly 5 million self- employed workers of which
Matt Frain: you're one, which is around 15% of the total workforce.
Angellica Bell: I mean, that's a high star, I didn't think it was that big.
Matt Frain: It is. And I think there's been a move towards that in
Matt Frain: recent years, especially with COVID, a lot of people wanting
Matt Frain: to be their own boss, so that figure has increased.
Matt Frain: So there are a significant amount of people who will
Matt Frain: be in a similar position to Jesse and will resonate
Matt Frain: with the things that we're talking about here and picking
Matt Frain: up from Pete and Jesse's conversation. The first thing I
Matt Frain: want to talk about is emergency funds. You should always
Matt Frain: have some form of emergency fund in place. Now these
Matt Frain: should be readily accessible funds, so money that you can
Matt Frain: get your hands on easily, that are available to you
Matt Frain: at short notice. This is really important for everyone, but
Matt Frain: arguably more so for the self- employed.
Angellica Bell: Yeah, just a pot where you don't touch it and
Angellica Bell: gives you that security, especially when you aren't getting work
Angellica Bell: all the time, if it's up and down.
Matt Frain: That's it. It's all about security. So it can be
Matt Frain: the unexpected things in life, like your boiler breaking for
Matt Frain: instance, but it can, especially if you're self- employed cover
Matt Frain: periods of time where you might have some form of
Matt Frain: income short for.
Angellica Bell: And Matt, a lot of people I know who are self-employed, always say I don't have a pension. The house
Angellica Bell: is the pension and stuff. So what would you say
Angellica Bell: to that? And are there pensions that they should be
Angellica Bell: putting money into?
Matt Frain: Thankfully personal pensions are very easy to set up, and
Matt Frain: payments can begin from a relatively low base. So they're
Matt Frain: pretty much accessible to all. They're also very flexible. So
Matt Frain: you can alter the contribution levels that you make, and
Matt Frain: you can also stop and start payments. Just a word
Matt Frain: of caution, if you are reducing or stopping payments into
Matt Frain: a pension, then there will be a knock on impact
Matt Frain: on your overall level of pension savings. But the important
Matt Frain: point here is that you do have the flexibility to
Matt Frain: do that to suit your circumstances. The other great thing
Matt Frain: about pensions that can be really important to the self-
Matt Frain: employed in particular is the ability to make lump sum
Matt Frain: payments. When you're self- employed, as we've just discussed, you
Matt Frain: might not know how much money is coming in on a
Matt Frain: regular basis, how much you can comfortably commit to pensions
Matt Frain: until the end of your financial year. So one strategy
Matt Frain: that you could employ is to make regular contributions at
Matt Frain: an easily affordable rate, the rate you are comfortable at
Matt Frain: and then make a single lump sum payment when completing
Matt Frain: your financial year end, essentially topping up the regular contributions
Matt Frain: that you've been making. Jesse also mentioned that she wasn't
Matt Frain: sure she qualified for the state pension. So I just
Matt Frain: wanted to touch upon that quickly. Now state pension entitlement
Matt Frain: is based on national insurance contributions or credits towards these
Matt Frain: such as being in receipt of child benefit. Under current
Matt Frain: legislation, you need at least 10 years of those national
Matt Frain: insurance contributions to qualify for any state pension at all.
Matt Frain: And you need 35 years to get the full state
Matt Frain: pension. So you need quite a long contribution history. If
Matt Frain: like Jesse, you're not sure, you can check your current
Matt Frain: state pension entitlement by visiting the government website, www. gov. uk.
Angellica Bell: I'm going to get on that. One thing that stood
Angellica Bell: out for me from that conversation was talking about insurance.
Angellica Bell: You do need to be protected. It's vital, isn't it?
Matt Frain: Yeah, protection is a huge area, particularly for the self-
Matt Frain: employed. We heard Jesse and Pete talk about key man
Matt Frain: insurance, which is one consideration for the self- employed and
Matt Frain: for business owners in general, the other main areas of
Matt Frain: protection are life insurance, critical illness cover and income protection.
Matt Frain: Life insurance will pay out upon death and is generally
Matt Frain: used to clear debt such as a mortgage being the
Matt Frain: main debt that we normally have and all to provide
Matt Frain: money to loved ones. So to make sure that your
Matt Frain: financial dependence are set up and can continue their standard
Matt Frain: of life, if you were to pass away, critical illness
Matt Frain: will pay out upon diagnosis of certain illnesses and is
Matt Frain: generally used again to clear debts like the mortgage, but
Matt Frain: can also be used to provide any adaptations needed due
Matt Frain: to the impact of the criticalness. So that could be things like
Matt Frain: putting in stair lifts, widening doorways or anything else that
Matt Frain: may be necessary or critical illness can simply be used
Matt Frain: as a cash buffer whilst you are undergoing treatment. So
Matt Frain: it just provides that comfort that you're not short of cash
Matt Frain: at a time when you've got a lot of other
Matt Frain: emotional burdens, finally income protection. So last, but definitely not
Matt Frain: least on the list. This provides a regular income stream
Matt Frain: if you are unable to work due to accident or illness, one
Matt Frain: of the key points to highlight here, Angelica is that
Matt Frain: these policies are designed to compliment each other, not to
Matt Frain: be an either or option. If you're self- employed, you
Matt Frain: won't have any form of cover from an employer and
Matt Frain: you are likely to be more susceptible to immediate loss
Matt Frain: of income if you suffered a period of ill health.
Matt Frain: So I would strongly recommend that anyone who is self-
Matt Frain: employed looks into getting the right level of cover in
Matt Frain: place because it's that important. And if you're not sure what
Matt Frain: cover you need, then please speak to an expert about
Matt Frain: the range of options available to you.
Angellica Bell: Some great advice there, Matt, appreciate that. Thank you so
Angellica Bell: much. And of course thank you to Jesse for sharing
Angellica Bell: your story. Now don't forget that wherever you are in
Angellica Bell: life, you can find lots more resources and information on
Angellica Bell: Legal & General's website. Just go to Legal& General. com. For
Angellica Bell: instance, if you're thinking of buying a property, like Jesse,
Angellica Bell: there's the handy guide, what to consider when buying a
Angellica Bell: house. There's also useful information, if you're looking to set
Angellica Bell: up your own pension, you can find links in the
Angellica Bell: show notes, I'm Angellica Bell and join me next time
Angellica Bell: on Rewirement, when we'll be looking at the gender pensions
Angellica Bell: gap, we'll be asking why is it that more women
Angellica Bell: than men find themselves without enough money for a comfortable
Angellica Bell: retirement and more importantly, what can they do about it?
Angellica Bell: Follow this podcast on your favorite platform. So you don't
Angellica Bell: miss an episode and I'll catch you then.