9 steps to managing your income when working for yourself

managing an unpredictable income

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If you choose to become a self employed care worker, it means that your income is probably not going to be consistent from month to month.

When you manage your money well – especially if your income is not consistent – you’ll feel more confident, and be much more prepared to negotiate rates with new clients and grow your client base.

Here are some easy, do-able steps for managing the unpredictable income of a self employed care worker like you.

Step 1: Know your expenses

How much do you need each and every month just to live your life and earn a living? That’s one number you need to know.

As a care worker, you are lucky that you probably don’t have many business expenses. But you will need to include costs for things like training courses, conferences & seminars, travel costs (public transport, taxis, parking, petrol, rego, insurance etc), computer costs, telephone costs, subscriptions, books, etc.  Note that these expenses are all tax deductible!

Keeping track of your expenses will mean that you are ready at the end of the year to claim all the deductions you are owed.

The simplest way to keep track is to write it in a book or buy a Ledger / Cash Book from your local newsagent to make a daily/weekly record all your income and expenses. Keep all receipts together (a shoe box will do!) in case the ATO asks for them.

Check out MoneySmart’s online budget planner or download their budget spreadsheet.xls

Step 2: Understand what income you need

Understand what you need to earn enough to pay all your expenses, see Step 1 above.

If you don’t know what’s the minimum you need to cover your expenses, you’re not going to know how much to charge your clients.  More than likely, you will under-price your services below market value because you ‘need the work’.

Read more at What to charge?

Step 3: Start a plan to pay off debts

Start by creating a master list of all your debts. When you begin paying them down, start with the one that is the lowest number. All of the extra income you have goes to paying that off. Once you’ve paid it, you move to the next higher number on the list.

By paying one debt at a time, you’re not splattering yourself all over the place trying to pay off this giant thing called “DEBT.” You’re chunking it down and making it doable.

After that, you can use that money to begin a savings plan.

Step 4 – Set aside money for tax

A common pitfall for the newly self-employed is failing to set aside money to pay for income tax. Unless you plan ahead for tax, it can be difficult to pay your annual tax bills. A bookkeeper can advise how much tax you should be putting aside. See Step 5.

Step 5 – Set aside money for those ‘rainy days’

As a person who is self-employed, you will not get paid when you are sick. So putting aside money for times when you might not be able to work makes sense.

There are also those times when you are ‘in between’ jobs, because a client dies or goes into hospital. A ‘rainy day’ savings account can keep you afloat until you get a new client.

Step 6 – Get help from a bookkeeper

Let’s face it, accounting is probably not your first love – that’s why you’ve chosen a care career.

Every year, when tax time rolls around, you probably just want to get it out of the way.

Working for yourself means that you will need to work out how much your employers paid you, how much your private clients paid you, what your expenses were, and how much tax needs to be paid. So there’s no end of year surprise tax bill, it’s best to pay your tax throughout the year.

Accountants can be costly, an alternative is a bookkeeper who can set you up and show you how to stay on track all year long. That way, when tax time comes around, you’ll be saying “goody!” rather than feeling the usual dread.

Check out Find a book keeper

Step 7: Don’t forget to plan for your retirement

As a self-employed contractor, you need to think about superannuation more than anyone else. If you don’t, you might not have enough money to live on when you retire.

Contributing to your superannuation fund is worth it.

As a self-employed person, you can receive bonus contributions from the government. If you earn less than $49,488 per year, the government will co-contribute to your superannuation contributions. And if you earn less than $37,000 the government will further contribute $500 to your super.

Also, as self-employed person you can claim a tax deduction on your super contributions.

Step 8 – Register for an ABN

As you are operating as an independent worker on Better Caring, you will be required to have an ABN for tax purposes. In addition to this, an ABN is usually required on invoices we issue for any clients you work with who have government funding.

It doesn’t cost anything to get an ABN.

Having an ABN will allow you to can claim back the GST (goods and services tax) on all your purchases from the tax office.

NB You won’t need to charge GST until you earn over $75,000 per year.

You can apply easily and for free for an ABN or GST through Airtax or the Australian Business Register website directly.

Step 9 – Develop good money habits

Great habits work. And great habits are required when it comes to managing your money. Especially if your money is inconsistent.

Develop a money habit that includes updating your cash book weekly with expenses, and schedule a quarterly check-in with your bookkeeper.

The key is to start being in a good relationship with this thing called “your money.”   A good relationship needs regular monitoring, neglect it and you will suffer.