Use the latest browser recommended by Microsoft
Get speed, security and privacy with Microsoft Edge
Working for yourself can bring freedom and flexibility, but it also comes with unique financial challenges. Unlike employees, who usually receive a steady pay cheque as well as a variety of benefits including employer-sponsored retirement plans, health insurance, and even funding for education, self-employed people are responsible for managing all of these. That makes it all the more important for them to be proactive when managing their financial affairs, especially when it comes to saving.
In this post, we’ll outline some essential strategies for saving as a self-employed person.
Budgeting is important for everyone, but it’s especially important when your income fluctuates. Track your expenses and income, and just as you allocate funds for rent, utilities, and insurance, be sure to set something aside for savings. Whether you use pen and paper, a spreadsheet, or a budgeting app, you must know your numbers.
You’ll need a financial safety net for periods of low or no income and unexpected events such as serious illness or equipment breakdowns. This will give you peace of mind and, depending on the size of the fund, can help you withstand financial storms without taking out a loan, using your credit card, or diverting money away from long-term investments.
If you can’t put aside the same sum of money each month because your income varies, personal finance strategist Marcia Armstrong suggests saving the same percentage of your income no matter how much you make. Let’s say you decide to save 10 percent of your income each month. If you make $5,000 in April, you would save $500. However, if you make just $3,000 in May, you would save $300. When it comes to saving, a little is better than nothing at all.
Unlike traditional employees whose employers may contribute to a retirement plan on their behalf, you’re solely responsible for your retirement savings. Therefore, you need to make this a priority, even if retirement is still some time away.
Financial educator Nikita Gibson notes that while we often believe we’ll need less money in retirement than during our working years, with major expenses such as mortgages and children's tuition behind us, this isn’t always true for the entire retirement period.
“Consider the average cost of a senior living facility in Barbados today, which is $2,500 per month. With inflation, this expense will only rise, currently consuming about 93 percent of the maximum pension from the NISSS (National Insurance and Social Security Service). Relying solely on social security for retirement is, therefore, inadequate,” she says.
Relying on only one form of income can make saving seem particularly difficult. However, diversifying your income will boost your earning potential and enable you to save even more. Diversification can take several forms, including offering different products or services in your industry, entering a new field, or seeking out opportunities to earn passive income. By expanding your income sources, you’ll be able to save even during slow periods in your key industry.
You may need to change your savings strategy as time goes on. Review your financial goals, income, and expenses regularly. If you get married, buy a home, or experience a significant fluctuation in income, you may have to adjust the amount you save. Changes in tax regulations could also impact your savings goals. Consider reaching out to a professional for guidance on these matters.
If you’re at the beginning of your savings journey, building up a nest egg may be daunting. However, saving is essential for financial wellbeing, and with the right mindset and know-how, you can build a strong financial foundation even while you’re self-employed.
Visit our MoneySmart hub for more articles, videos, and tips on how to secure your finances. Have a specific question you’d like answered? Submit it and it could be answered in our Ask the Expert column.