Being your own boss is a dream of many. Especially for the self-employed, financial success demands hard work and diligent planning. Careful money management is essential when you run your own business and do not have the reassurance of a regular salary coming in each month. However, when you are thorough and committed to the financial well-being of your business, enormous personal satisfaction is possible. If you are serious about enjoying financial success through self-employment, follow these five tips.
1. Maintain a Focus on your Retirement Savings
Although retirement possibly feels a long way off for you right now, experts know that it’s vitally important for the self-employed to think ahead and put money away for retirement. You may earn quite a healthy income while working for yourself, but you do not have the benefit of superannuation contributions paid by your employer. This means that you have a limited amount of money to draw from in retirement. In 2012, approximately 25 per cent of self-employed people in Australia had no superannuation whatsoever.
It’s hazardous to assume that the sale of your business will provide the funds needed for your retirement. Your business may prove difficult to sell or may be worth markedly less without your involvement.
If you are self-employed it’s wise to build up your retirement savings separately from your business. Investigate whether you qualify for the government superannuation contribution and find out about tax reductions that may be possible as a result of saving for your retirement.
2. Manage Cash Flow Well
For many self-employed people, the flow of money may be irregular. Sometimes months can pass between pay checks. With this in mind, careful management of your money is critical and necessary if you are to avoid reliance on credit cards with high interest rates.
Manage cash flow by paying yourself a weekly wage. Keep separate bank accounts for your personal use and your business transactions. You should try to deposit business revenue in a high-interest savings account and be strict with the way this money is used.
3. Take Action to Protect your Income
If you are unable to work because of illness or injury, your personal financial situation and that of your business could be severely jeopardised. Particularly for the self-employed, income protection is important and will offer financial protection if you are injured or ill and unable to work. Also, the premiums for income protection insurance are often tax-deductible. To ensure you receive everything you’re entitled to, contact a legal industry expert such as www.superclaim.com.au
4. Plan Ahead
Budgeting and being prepared for upcoming expenses is essential for the self-employed. As you won’t have the advantage of things such as paid holidays, you need to be diligent about setting aside funds and save as much as possible as regularly as possible to help you survive quiet periods and enjoy a break from time to time.
5. Have Money set aside for Tax
All too often, small businesses do not set aside adequate funds for tax payments. There are significant penalties that the Australian Taxation Office can impose if you fail to meet your tax obligations. It’s a good idea discuss your situation with an accountant and understand how much you should be saving for taxation purposes.
To enjoy financial success as your own employer, ensure cash flow is well-controlled, keep your own money and that of your business separate, and plan ahead for the future.