Personal Finances: The Unsexy Side of Self-Employment

by Danielle Andrews

Being self-employed is paradise. You have no one to answer to except the clients you choose to work with, a work schedule you choose, the money you make for the company is your money, you get tax write-offs and tax-breaks on everything from housing to your vehicle. It is great to be self-employed.

One thing most of us don’t like to think about are the securities you give up when working for yourself; Pension Plans, Long and Short-term Disability, Unemployment Insurance, Employee Health Plans, taxes being deducted and calculated for you, etc. There are definitely perks to working for someone else.

To get the best of both worlds, one must pay attention to the unsexy side of self-employment: personal finances.

Often when I talk to self-employed people they mention their long-time goal of winning the lottery. I know I will win the lottery one day, but apparently a bunch of other people think they will too. So to all of you who probably are not going to win the lottery, what is your retirement plan?

It may seem crazy to think about retirement when you are so young, but if you don’t start planning for it now, you will have nothing to live on later. How are you preparing yourself and your finances for the day that you are too old to work? You need to have enough money put aside to support yourself for about 20 years. If you were working for someone else, 20-40% of your income would be deducted for taxes, pension plan, etc. In order to plan for your future, it is time to start taking the same amount and putting it aside for the same things.

What you need to do now:

• Put aside 20-30% of your income for taxes, every month (assuming you choose to use those tax write-offs and breaks available to you.)
• Open an RRSP. Now.
• Quit paying your landlord’s mortgage, buy something. That investment will help you later on.
• Get a Life Insurance policy. Protect your loved ones.

Many of us can not picture working for someone else ever again. I know someone who owned his own company for 35 years, just last month he went out of business and had to go work for someone else, at the age of 60, because he doesn’t have enough saved or put away in RRSPs to be able to retire. This is not a situation any of us can imagine, so please take steps now to ensure you will be in control of your finances later.