Self-employed people

Minding your own business

Many of us dream of being our own boss, and with hard work and careful planning, self-employment can bring financial and lifestyle rewards - along with enormous personal satisfaction. But without the backup of a regular wage or salary, running your own show calls for careful money management.

Manage your cash flow

Many self-employed Australians earn a good living. But while your overall annual income may be strong, the flow of money is not always regular. It can be weeks and even months between pay cheques.
So it's very important to manage your money carefully. Running out of cash before you get paid again could mean living on credit cards, which charge high interest rates.

Pay yourself a wage

Rather than treating all the income you earn from your business as your personal spending money, pay yourself a weekly wage. You should also maintain separate bank accounts for business receipts and personal spending.

Deposit or transfer your business revenue into a high-interest savings account, and only draw on this account to pay yourself a set amount as a wage, or to pay actual business expenses. Putting your business earnings in a high interest account is a simple way of earning extra income through interest.
Set a personal budget to help you live within your wage, and so that you don't dip into business receipts too often. Use our budget planner to work out your wages and spending.

Plan ahead for holidays

As a self-employed worker you won't enjoy the benefit of paid holidays: it's up to you to set aside funds. Saving a little extra on a regular basis will help you manage through any quiet business periods, as well as funding a well-deserved break. 

Set aside money for tax

A common pitfall for small business is failing to set aside money for income tax. As you become more established the Australian Taxation Office (ATO) might also require you to make quarterly pay as you go (PAYG) tax instalments. If you don't meet your tax obligations each year, you could pay hefty penalties. Talk to your accountant and read ATO: Key lodgement dates for business. At worst, the ATO can take legal action, including winding up your company or bankrupting you to recover unpaid taxes.
Unless you plan ahead for tax, it can be difficult to pay tax bills when they fall due. So it's worth making this a priority for your business.
Use our savings goals calculator to work out how to set aside money for your upcoming bills.

Divide your cash takings

Keep on top of your tax obligations by opening a separate savings account and regularly deposit part of your takings into this account. It can take discipline not to dip into the account, but a good incentive to leave the money aside until you need to pay tax is to remember that the ATO can charge high penalties for late tax payments.

Don't forget GST

If your business is registered for Goods and Services Tax (GST), you will also need to set aside money for that. 

Don't neglect retirement savings

Self-employed people often earn a decent income while working, but without the benefit of employer-paid superannuation contributions, find they have very little money to live on in retirement. Almost a quarter of self-employed Australians had no superannuation at all in 2012, according to research by the Australian Super Funds Association (ASFA).
Don't rely on selling your business to fund your retirement. Without your involvement, your business may be worth less than you think. Many business ventures can also be hard to sell. Instead, think about building a separate pool of retirement savings. You may also be eligible for the government super co-contribution. For more information see super for self-employed people.

Save for retirement, save on tax

Superannuation is a tax-effective investment for retirement savings. Adding to your super can also reduce the tax on your current income.
As a guide, you or your business may be able to claim a tax deduction of up to $30,000 annually for contributions to your superannuation fund (or $35,000 annually if you are aged 50 or over). It's an easy way to trim your tax today while building a nest egg for the future.
Be sure to make your contributions before 30 June to claim them as tax deductions, but be careful not to go over the contribution caps so that the penalty tax does not apply. 

Protect your income

One hazard of running your own business is being unable to work due to illness or injury. Without sick leave, your financial situation could take a turn for the worse if you become sick or injured.
Income protection insurance protects you financially if you can't work because of illness or injury. It's worth thinking about when you run your own show because bills don't stop if you're unable to work.
Premiums for income protection insurance are usually tax-deductible, which helps reduce the cost. Most large insurance companies offer income protection insurance, or you might be able to buy it through your superannuation fund. Do an internet search to compare different income protection insurance products and prices.

Keep control your cash, and draw a line between your personal and business' money, to help you make the most of self-employment.

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