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Self Employed? Lets talk about money management.

by Shelly Horton

Money habits are everything!

Kissing the nine-to-five goodbye and becoming your own boss is a dizzying experience. The dreaming, the refining, the hustling, the self-promoting, the, you know, working!

Let me tell you from someone who’s been there, it’s a lot. And then some.

So trust me when I tell you one of the biggest mistakes you could possibly make has nothing to do with how sensational your idea is. If you’re too preoccupied to focus on your money habits and how you’ll need to polish them up, you’re destined to fail before you even launch.

You could be sitting on the next freaking Wordle. It won’t mean squat when the ATO crashes your party with a tax bill to send you bust. Or your retirement arrives and nothing’s in your super. Or, your business spending becomes personal spending and you’re suddenly faced with no option but borrowing.

One thing that’s going to cover you against a minefield of potential pitfalls?

A safety net.

Have a buffer + be ATO smart

Diving into the unknown, again, as genius as your hustle is, requires a buffer to guarantee you keep that roof over your head. I made sure I had four months’ worth of living expenses in the tank, though I only needed about three months’ before my cash flow kicked into gear. Go for four and use any leftovers as a float for expenses.

Don’t think you’re above paying income tax. I’ve had numerous friends complain about so-called surprise bills come tax time and I offered zero sympathy.

What you owe will obviously depend on what you earn but when you’re starting out, it’s safe to assume about 30 to 50 per cent of your earnings should go into a separate bank account to allow for those bills.

The ATO website offers some good detail, as well as a Pay As You Go (PAYG) calculator to help with businesses earning substantial coin that may need to cough up more often than others. Put 15 minutes aside to browse the website for valuable, tailored tax advice.

Check your business

Which reminds me, one silly thing I’ve been guilty of in the past is forgetting to check if my ABN was active. I didn’t even realise ABNs were cancelled due to inactivity over time. To see if yours is A-OK and you don’t need to resubmit an ABN application, look at your Personal Details section on the ATO website where you’ll find your current status.

Oh, and speaking of learning from other mistakes of mine, think about income protection insurance. Not having paid sick days may take its toll if you get ill or need time off down the line.

Dont get personal! Separate your costs

Draw a line between your business costs and your personal ones.

Even better, create separate bank accounts so you know exactly what you’re earning and where to spend from. It seems simple but if you don’t track these things, you’re essentially mismanaging your business. Wouldn’t that just be the most embarrassing reason to abandon your big dream?

Finally, show your Super some love because you no longer have a boss divvying up contributions for you. When you’re self-employed, you’ll need to manage fund payments yourself. How? Factor them into your monthly budget so you can hold yourself accountable.

Don’t forget, it’s your short game that’s been flipped entirely on its head, not your long one – getting money savvy now is the key to keeping your waterfront retirement plan intact.


Feeling smarter about your money already?

It sounds like you’re ready to take the next step in on your path to financial security. All it takes is a bit of expert guidance to point you in the right direction for you. If you’re full of questions about how to manage your money better – The Advantage Money Mentors have the answers. Book your no-fee introductory chat today.