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
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
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: 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
Use our savings goals calculator to work out how to set
aside money for your upcoming bills.
Savings goals calculator
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
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
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
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
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
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
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
Keep control your cash, and draw a line between
your personal and business' money, to help you make the most of
Last updated: 20 Jul 2015