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 security 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.

Smart tip

If you buy second-hand equipment, machinery or vehicles for your business, check the Australian Government's Personal Property Securities Register (PPSR) to make sure there's no money still owing on it.

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 to earn 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.

Compare your wages to your spending.

Budget planner

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 during any quiet business periods, as well as funding a well-deserved break.

First Business app First Business Image

Thinking about going into business for yourself? ASIC's First Business app can help you as you move towards starting your own business. The app provides tips and things to think about, checklists, case studies and links to additional small business information.

Set aside money for tax

A common pitfall for small business owners 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. Use the ATO's PAYG instalment calculator to estimate how much tax you'll have to pay.

If you don't meet your tax obligations each year, you could pay hefty penalties. Talk to your accountant and read ATO: Due dates for lodging and paying your BAS. 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.

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.

Self-employment and super

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.

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. 

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.

You may also be eligible for the government super co-contribution. For more information see super for self-employed people.

As a guide, you or your business may be able to claim a tax deduction of up to $25,000 annually for contributions to your superannuation fund. 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 can help 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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Last updated: 13 Feb 2019