No-one likes to think about getting old, or worry that things might go wrong, but if you’re a self-employed photographer, sooner or later you’re going to have to face up to the fact that you’ll encounter quiet periods, and that you may want to retire at some point. Savings and pensions are probably two of the most boring topics I’ll ever talk about, but a little amount of time spent thinking about them can save you some very unpleasant times further down the road.
Important caveat: As with any financial advice I give on this blog, don’t take my word as law. Tax rules change all the time, I only have experience of the UK, and to be on the safe side, check with your accountant or an independent financial adviser (IFA). Now, with that out of the way, I can detail some useful things you can do that will keep you afloat when times get quiet or when you choose to hang the cameras up.
First up, do your budgeting thoroughly, and honestly. I wrote about break even many moons ago, and the whole business section of the site is due a renewal and overhaul, but nothing’s changed as far as budgeting and break even go. Step 1 of any financial calculations should be an accurate and honest idea of how much money you need to bring in every month just to stay alive.
If you’re sensible, you’ll build some contingency into this budget, but it would also be wise to build in some money for savings, and make it automatic, rather than something you have to choose to do. Set up a direct debit from your business bank account to your personal one, and ensure that some money every month ends up in savings. If you leave it to a conscious decision I guarantee you, you won’t do it every month.
How much should you save? Well that’s totally up to you, but I’d suggest you make sure you’ve got a few months worth of money to live off as a minimum. The precise amount will of course depend on your break even calculations, but I’d err on the side of saving more rather than less!
Exactly where you put these savings is up to you – I’d suggest that “savings” is not so much about putting money aside so that it can grow (either via interest, or the stock market) but fencing off a section of your money that isn’t immediately accessible via your debit card/credit card/bank account. Interest rates are so low nowadays that saving as a way to generate money isn’t really an option, so in practical terms I’d suggest an instant access savings account of some sort, ideally one with internet access that then lets you transfer money rapidly should you need it. Again, the idea is just to separate things out – even the 5 minutes it takes you to log on, transfer funds and so on, is enough of a barrier to stop you using savings money for impulse purchases or the weekly food shop.
Also – make sure that besides saving for the proverbial “rainy day”, you’re putting money aside as a matter of course to take care of things like VAT and corporation or other tax. A very good habit to get into is to instantly chop off 20-30% of each invoice as you pay it in, and push it into savings. I use a specific business bank account for just this purpose, and besides making the whole tax and VAT bill less of a headache, there’s usually some left over as a cushion should I need it.
On a general note, if you’re in a relationship, or more seriously, co-habiting with someone – Have a conversation with your partner – hopefully you have already – so that you both understand what might take place if you go through a quiet patch (and I’m just talking financially here, not the fact that you’ll also go a bit loopy….)
There’s not too much detail I can go into here, other than to say “Get One”. Pensions are best thought of as just an extension of your savings, with the proviso that you’re not supposed to touch the money for a very long time yet. This area is obviously extremely complex, heavily regulated, and I wisely defer most of the technical side of it to an IFA. I’d advise you speak to one, rather than try and fathom it all out yourself. If you already have an accountant (you do have an accountant, don’t you?) then they should be able to recommend someone suitable, or offer the service themselves. I’ve had my own pension for 13 years now, and whilst it’s not huge at the amount I pay in, it’s steadily building up, and should be a useful cushion when the time comes to lay the cameras down and regale everyone else in the old photographer’s home with my anecdotes…..
My very minimal understanding of the “new” Workplace pension is that if, like me, you’re a limited company with only one employee, and that employee has their own pension, then you’re sorted. As with anything relating to precise financial issues, don’t just take my word for it – check with an accountant, otherwise you might find yourself with a fine.
***UPDATE*** Wise input from my pensions-expert cousin, is that if you’re uncertain about whether your pension qualifies or not, you should go here: The Pensions Regulator and find out.
Finally, a word about the very notion of “retiring”. Retirement is not necessarily something that photographers do. Not least because we’re lucky to work in jobs that hopefully fulfill us, rather than just to pay the bills, and many of us get tetchy when we can’t shoot stuff. However, you’ve got to be realistic (particularly if you’re young) and recognise that you may not always feel this way, and even if you do, you may not be physically capable of doing the same type of work you do now many years in the future. I doubt I’ll be shooting adventure races in my 50s and 60s, for example! To this end, accept that the longer you put off a decision like pensions, the worse the problem gets, and the earlier you start, the more you’ll have. I’d also give some ongoing thought to taking care of your copyright and paying attention to licensing along with any contracts you sign. Don’t expect residual income from your work to replace a pension, but it may supplement it nicely.