A number of us dream of working for ourselves, and with diligent work and good organisation, independent work can bring financial and lifestyle rewards - alongside huge individual fulfillment. In any case, without the reinforcement of a regular pay, running your own show calls for careful cash administration.
Your profession and expertise is your trade. Often we see the wife/partner take on the business book keeping and accounts. Maybe you intend to keep all your receipts in a shoe box to present to the accountant at the end of the financial year. Regardless, there is far more to business finance than sending an invoice and banking your client’s payments. Whether you have left your employer or in the process of going out on your own there a few questions you need to consider.
1. How will you manage if you run out of cash before the next contract?
For the individuals who are considering self employment, the adjustment in not receiving a regular pay cheque can be a significant. A new business may not have this allowance. While your yearly wage income may end up being very substantial, dealing with the everyday income as a sole trader is an alternate story. It's a smart thought to ensure you set a spending you can stick to. Things like the management of your daily cash flow, expenses of business, taxes and rent would all be able to affect your income at any given time. So it's imperative to deal with your cash carefully. Coming up short on money before you get paid again could mean living on credit cards, which charge high interest costs.
2. Are you set up financially to retire?
Retirement may appear like a lifetime away however it needs to be planned now. Many tradies maintain their business as Sole Traders or Partnerships, which implies they are not required to make mandatory superannuation commitments for themselves. The outcome is that many independently employed individuals wind up with essentially less super and less financial freedom on retirement.
3. Can you work until you are 70?
The second element influencing Tradies subsidizing their retirement is that the retirement age is gradually moving towards 70 and it will be harder for individuals who have worked manual labour to work the length of individuals who have worked in office based occupations. This could bring about individuals retiring prior, giving them less time to gather reserve funds, and spending longer in retirement, which means they will require more cash to retire with.
4. Can you afford to go on holidays?
Until you are self employed you won't appreciate the advantage of paid holidays: it's dependent upon you to set aside savings. Sparing somewhat additional all the time will help you oversee through any calm business periods, and allowing you a well-deserved break.
5. What should you do?
With lower superannuation balances, retiring early and having a more drawn out retirement could have a major financial impact on self- employed Tradies. Keep in mind it is anything but difficult to put this to the back of your brain as it is feels such a long way off. An ideal opportunity to act is now. Decisions made today will make saving for retirement so much easier.
Looking to seek advice from a reputable financial advisor? Have specific questions that you'd like answered? Do you want peace of mind to continue to do what you are good at, knowing your financials are being managed? We're here for you! Just contact us and we'll be glad to assist.