Advice for freelancer - where do I put my money?

lost_need_help

Hi all,

New here (obviously) and would love some advice, if anyone has some wisdom to share.

I'm 30, self-employed, and making around £40-45k a year (this is approximate as the work is not 100% guaranteed, but I wouldn't expect it to go down). For the first time in my life, I'm in a position where I can save/invest the extra I'm making but not sure how best to go about it. I have around £15k saved already in the highest interest savings account I could find (Marcus) and would be looking at adding at least £500/month.

I don't own a house and am currently renting, so I'm thinking of maxing out a LISA for ~5 years and having a secondary account to add anything extra I can make. I've heard that under 5 years is not ideal for S+S investments and so am considering a cash LISA. Does that seem sensible?

Here's where I'm getting lost... I'm not sure how best to go about the second account. For context, I have zero pension scheme currently so I need to start saving in some form or another. I've read up about SIPPs and S+S ISAs and am basically looking at a passive fund investment (probably Vanguard LS (80?) - unless this is a bad idea?) in either format. I know the basic pros+cons, but I'm worried about tying my money into the account for the next 25/30 years. Is it really worth it for the tax relief? Considering I'd end up paying tax when withdrawing from a SIPP anyway?

I'm quite new to this whole thing and have pretty limited knowledge - prior to this I had everything in my current account - so would love to have some input from anyone who's had some experience with this.

Thanks!

fiisch

Similar situation as yourself. I think the answer to your question depends on a couple of factors:

1). Do you see your employment circumstances changing (i.e.: going permanent) any time soon? Or will you likely continue as you are?

2). How many months expenditure does your current pot equate to?

3). How are you set up? Do you pay yourself via ltd company or other?

If you're in a fairly stable position and unlikely to change any time, a SIPP definitely needs to be high on the priority list. That said, if you see yourself switching to a permanent job in the foreseeable future, the tax advantages of contributing to a workplace pension (especially if a higher rate tax payer) will be dramatically improved.

As an IT contractor, I tend to err on the side of caution - I like to have at least 6 months in my personal accounts as buffer, and another 6 months in the ltd company should I have a spell without work. I then tend to put a small amount into regular savers to cover annual expenditure (insurance bills, holidays, Christmas etc.) and the rest into a S&S ISA. I also contribute to a SIPP from my ltd company, but a fractional amount of my earnings - this is because forthcoming IR35 changes mean I will very likely be back in permanent employment, so would look to significantly up pension contributions at that point.

If I wasn't already on the property ladder, then I would divert every available penny to a deposit in the first instance, but that's just me.

So in summary, pay into everything... . It's all a question of personal circumstances and what's most important to you - property, retiring early, financial security in the present.

lost_need_help

Thanks for the advice! Like I say, it's all new to me so it's useful to hear. I can't see myself switching back to a regular in-house position any time soon, so maybe a SIPP is the way to go. I do want to prioritise property, though, so maybe I'll minimise pension payments for now and really upscale at a later time!

Linton

lost_need_help wrote: »

.......
Here's where I'm getting lost... I'm not sure how best to go about the second account. For context, I have zero pension scheme currently so I need to start saving in some form or another. I've read up about SIPPs and S+S ISAs and am basically looking at a passive fund investment (probably Vanguard LS (80?) - unless this is a bad idea?) in either format. I know the basic pros+cons, but I'm worried about tying my money into the account for the next 25/30 years. Is it really worth it for the tax relief? Considering I'd end up paying tax when withdrawing from a SIPP anyway?
...

VLS80 would be a reasonable choice for someone with no experience of investing starting to put money aside for the long term. There are several other equivalent reasonable choices but the difference in the long term is likely to be marginal.


The primary value of a SIPP is that if you contribute at a sensible rate it guarantees you wont live in poverty in the final 20-30 years of your life, no matter what happens in the meantime. The extra net tax relief from the 25% tax free lump sum is useful but its not the maing reason to use a SIPP. However if you are currently earning £40K-£45K you are in sight of being a higher rate tax payer. At that point it is difficult to argue against putting a significant amount into your pension.


You do need long term investments in both a SIPP and an S&S ISA as that is the only way to be pretty confident about beating inflation. Interest from savings is unlikely to provide that. The question you need to resolve is what is an appropriate balance.