Ideas to help you manage your income when working for yourself
If you choose to become a self employed care worker, it means that your income may not be consistent from month to month. When you manage your money well, you’ll feel more confident and prepared to negotiate rates with new clients. Here are some easy steps to help you manage yoru income when working for yourself.
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 may not 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, registration, 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.
Step 2: Understand what income you need
If you don’t know what you need to cover your expenses, you’re not going to know how much you will need to charge your clients to cover your costs. Often, new workers starting out will under-price their services because they ‘need the work’.
Read more at What to charge?
Step 3 – 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 4 – 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 may be ‘in between’ jobs, when a client no longer requires care, or their family takes over caring responsibilities for a time. A ‘rainy day’ savings account can keep you afloat until you secure a new client.
Step 5 – Get help from a bookkeeper
Let’s face it, accounting is probably not your first love – that’s why you’ve chosen a career in care. But 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. To ensure there’s no end of year surprise bill, it’s best to pay your tax throughout the year.
Accountants can be costly, so an alternative is a bookkeeper who can set you up and show you how to stay on track all year round.
Step 6 – Don’t forget to plan for retirement
As a self-employed contractor, you need to think about superannuation to ensure you have enough money to live on when you retire. Most self-employed people can claim a full deduction for contributions they make to their super until they turn 75.
You may also be eligible for the super co-contribution payment, which is designed to help low-to-middle income earners save for their retirement. If you’re eligible and you make personal super contributions, the government will match your contribution up to certain limits, unless you have claimed your contribution as a tax deduction.
For more information, visit the ATO website.
Step 7 – Register for an ABN
It’s not mandatory to have an Australian Business Number, but if you have any clients that are a business, the law says they should withhold 40% for tax purposes. It doesn’t cost anything to get an ABN.
Having an ABN will also allow you to claim back the GST (goods and services tax) on all your purchases. Note, you won’t need to charge GST until you earn over $75,000 per year.
Step 8 – Develop good money habits
Great habits work. And great habits are required when it comes to managing your money, especially if your income varies week to week. Develop a money habit that includes updating your cash book weekly with expenses, and schedule a quarterly check-in with your bookkeeper.