Self-employed have less money at the end of each month compared employed households

New data from Hargreaves Lansdown has found that on average, self-employed households have £89 left at the end of the month,  compared to £244 among employed households.

The self-employed are also more vulnerable if things go wrong: 70% of employed households have enough redundancy cover to be resilient, whereas only 12% of those where the main earner is self-employed do. Similarly, 92% of employed households have enough sickness cover – compared to 27% of those headed by someone self-employed.

However self self-employed individuals have more in savings overall to fall back on (households have £10,785 on average compared to £10,172 among employees), although it’s not evenly distributed, so slightly more of them fall short when it comes to having enough emergency savings (55% compared to 57% of employees).

But they fall a long way short with pensions, with only 36% are on track with their pension contributions – compared to 46% of employees.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “This time of year always poses challenges for people who work for themselves, as they wrestle with a tax return and a horrible bill on top of everything else. Self-employed people are no strangers to hard work and tough times, because in so many ways life is harder for the average self-employed person than their employed counterparts. So, as you slog through your tax return, it’s worth considering how the process can help you protect yourself.

“Their average incomes are 6% lower, and as a result they have much less cash left at the end of the month. In many cases, they also have to wrestle with the fact their income can be fairly lumpy, which can make it difficult to manage money in the short term and plan for the long term.

“The short-term squeeze is one reason why they carry hefty debt repayments – at £247 a month, excluding the mortgage. They may plan to borrow in the difficult months and repay in better times, but this can cause all sorts of problems if things don’t improve when you expect. The interest on your debts will also add up, whereas if you were to save for the tougher months instead, the interest on your savings would be working in your favour.

“The long-term issues may not seem so pressing when you’re facing short-term pressures, but over time self-employed people may be building themselves horrible headaches. Only 36% are on track for an adequate retirement income. This comes down to a combination of lumpy incomes making it difficult to know how much they can put into a pension, and the fact they don’t have an employer paying into their pension pot on their behalf.

“If things go wrong, they miss out on the safety nets offered by an employer. The good news is that they have built some protection for these difficult times.”