3 financial tips for self-employed workers
Self-employment is synonymous with freedom, flexibility and more possibilities, but we must not forget the greater responsibilities that come with it either. One of the most important - one that is often overlooked - is the commitment you owe to yourself to make a proper financial plan.
A survey on financial health and well-being, conducted in 2018 by Desjardins Insurance among approximately 3,000 Canadians, reveals the following:
Not saving enough and not having a cushion for the unexpected are the 2 main sources of financial stress. In total, 55% of respondents mentioned these 2 sources.
Unlike company employees, the self-employed do not have sick leave, group insurance or company pension plan. So it's up to you to put these elements in place. That said, the good news is, with the help of a knowledgeable financial advisor, planning your financial future well is a snap. Here are some tips on this:
Set aside at least 10% of your gross annual income for retirement. This is a general rule. If you have a high income, you need to save more so that you can maintain your current standard of living in retirement. The important thing is to start now and do it consistently.
Maximize your RRSP and TFSA contributions. Your financial advisor can help you get the most from these investment vehicles, depending on your tax situation, as well as your savings and retirement goals. If you run out of contribution room, consider universal life insurance.
Protect your income with insurance. If you are self-employed and cannot work due to illness or injury, you are not entitled to paid leave unless you have coverage to that effect. Disability and critical illness insurance keep you and your business afloat while you recover.
(A little last)
Save for your vacation. You might have made your dream come true by owning your own business, but your passion and determination might get you to work 24/7.
Don't underestimate the benefits of rest! Consider that an employee receives a minimum of 4% of their gross annual salary as vacation pay, and many large companies go beyond this legal minimum. As you are your own boss, don't forget to set aside a portion of your income, so you can make sure you have the money - and the time - to take a well-deserved break, at least once. 'year.
As your business grows, update your financial plan with your advisor.
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