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How to Survive the Financial "Challenge" of Self-Employment

Posted by Dean Blair on 5 October.

For a lot of self-employed people, it can be a struggle to make ends meet and plan for their future with a variable income.

Luckily, there are organisations out there who specialise in giving sound financial advice to self-employed people so that they can get a leg up on their financial futures. We spoke to Dean Blair at Foxplan (one of those organisations helping countless individuals plan for their futures), who shared with us some financial tips that can help self-employed people gain financial autonomy through deliberate planning and proactive insights.

 

In your experience, what are some of the challenges that self-employed people have when it comes to planning for the future?

One of the main challenges that we see quite often is this misperception that planning for the future isn’t possible. A lot of self-employed people earn variable income that can change monthly and even weekly. Planning for the future is still possible, so before going contracting or starting a business, building a cash reserve is important: this allows you to handle periods of no or lower income and still pay the bills in order to live. Have a plan – not just a business plan, but a personal financial plan.

 

What sorts of factors should a self-employed person consider when deciding how much income to put towards their future?

As you develop a plan, determine your short, medium and long-term goals. Make sure you add quantitative value to them: ask, “how much do I need for each goal?” Now you can calculate how much weekly, fortnightly or monthly income you need to allocate to those goals. Do an audit of what it costs to cover your fixed expenses (utilities, rent/mortgage, insurances) each month. Now you should be able to work out the percentage to allocate to each area each week, fortnight or month.

 

What advice would you give to someone who is beginning to think about their future and isn’t sure where to start?

It all starts with now. Work out your current financial position and net worth (what you own vs. what you owe). Then write down all the things you have always wanted to do in your lifetime – your dreams and desires – no matter how crazy they may seem.

Next, review these dreams and separate them into non-negotiable and negotiable. Start with the non-negotiable desires: why are they important to you and how urgent is it to make them a reality?

Break down the actions that are needed to make each dream a reality and set realistic milestones so you can immediately start working towards them. Think of it as a fitness program: there will be pain along the way and you’ll need discipline, but the payoff is well worth it in the end.

 

That’s an intriguing way of thinking about financial planning – that’s its similar in a lot of ways to a fitness plan. What sort of advice would you give people to help them stay on track?

All the best athletes have a reliable coach. Even professional teams and business people have an accountability partner. Find a coach who you know will give you unbiased yet supportive advice. When things get tough, they’ll be the person who will ensure that you stick to your plan. Make sure to measure your progress along the way and celebrate reaching your milestones with your coach.

 

In your opinion, is there anything we can do better in NZ to help people plan for their financial future?

Add financial planning to the school curriculum and get kids thinking about their financial futures at a young age. I have seen the success of this when we ran financial fitness boot camp with 120 Year 7 & 8 students. They were really engaged and soaked up the information.

Don’t be afraid to get advice. The Kiwi psyche is very DIY, “she’ll be right,” and “we can figure it out later”. In my experience, having a coach or adviser makes a huge difference in peoples’ lives. The best part for us is seeing our clients reach their milestones and live the life they want to live. We’ve created a safe place at Foxplan where people can talk about money and realise it can be fun and certainly not as hard as they thought it would be.

Money can be fun. Don’t be afraid to have those conversations with your loved ones, friends, family or work colleagues.

 
Dean Blair, an authorised financial adviser (AFA) and Director at Foxplan, is a Contributor for The Leap. Foxplan, a Wellington-based consultancy, has spent the last two decades delivering holistic financial advice to people of all ages and economic backgrounds.
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