When you’re a self-employed individual, contractor, freelancer or sole trader, one of the hardest things can be working out how to plan for the future.
This can be for a few different reasons. Perhaps you can’t be certain about your long-term income because you frequently move between clients and jobs. It can also be a challenge to actually know how much of your income is available for you to spend or save. The way the tax system is set up, it can be difficult to do anything other than just put some proportion of your money away, and hope that it will be enough to cover your tax bill. It’s also difficult to plan or invest in your future, because banks and other institutions are all set up to favour those who have permanent jobs, and make it harder for people who are self-employed to get access to services like mortgages, loans or insurance.
The impact of not being able to plan for the future can be huge. A recent article noted that “While Australia’s superannuation pool sits at $2.5 trillion and growing, the rise of the gig economy and regular job swapping have become problematic for a superannuation system designed for full-time workers”
As the world moves towards a model where more and more people are selling their services on casual, short term contracts, it’s clear that the responsibility for planning for the future firmly lies with the individual. So how can you best plan for the future as a self-employed person?
We’ve compiled a quick list of 3 things you might want to do:
1. Track the consistency of your income over time
If you can start to look at the changing nature of your income over time, you can start to see trends and patterns, that will give you a better idea of what the future might look like. Are you currently earning more or less than this time last year? What does your pipeline of work look like? Making decisions about your future can be really well informed if you’re able to take a look back over what has happened in the past, and make some educated predictions about the direction your income is headed in.
2. Make voluntary KiwiSaver/Superannuation contributions
Being self-employed, you probably don’t get the luxury of having an employer that contributes towards your KiwiSaver or Superannuation - so it’s something you need to arrange for yourself. It sounds obvious, but by taking a set percentage of your income and putting it away into your KiwiSaver, you can start to build up that nest-egg that’ll come in very handy in the future. In addition to this, if you meet the minimum contributions, you can get a Member Tax Credit (MTC) from the Government here in New Zealand each year.
3. Know your financial position
Getting confident and comfortable about what you can afford to save for the future, and what you need to cover your regular outgoings can be really tough as a self-employed individual. Planning out a budget of your regular expenses, and getting comfortable with how much is left over for you to be able to put into savings can be a really useful way of getting confident about how your savings might grow over time. In addition, (and it might take a while to get up to speed on this), but getting right down into the detail of exactly how much of each different tax you need to pay, when the payment dates are, and ensuring you’re holding on to exactly the right amount of tax can certainly give you comfort that you know what’s yours to spend or save.
Hnry provides a service that helps self-employed people accurately plan for their future - without having to take on the burden of working everything out themselves:
Pay all your taxes as you earn, so that you always know that what you receive is yours, allowing you to plan and budget the right amounts to put away for the future. When you get your self-employed income paid into your Hnry account, the exact right amount of every tax is paid immediately, so you never have to worry about it.
Automatically make KiwiSaver contributions every time you get paid, to ensure it’s not something you have to ever think about or do for yourself. Just like when you have a permanent job somewhere, Hnry ensures the KiwiSaver contributions get deducted before you get the money, so you always know you’re putting something away for the future.
Receive Pay Summaries (like a payslip) every time you get paid, showing how much you’ve earned and what taxes you’ve already paid through your Hnry account. This makes it a lot easier to prove your income to banks and other providers, and take advantage of those services that used to be reserved for those with permanent jobs.
See income trends over time: We’re currently building out our web platform to allow Hnry customers to track their income over time, get trends and reports and to see what their income patterns look like - to make it even easier for you to get comfortable with what the future could look like.
What other ideas or suggestions do you have about planning for the future as a self-employed person? Let us know by getting in touch below.