Thinking about becoming a self-employed contractor?

By Risk specialist Lynda Taylor. Licensed Financial Adviser FSP 9752

In many industries, the initial focus for a person who becomes self-employed is on marketing to find customers. In your profession, this is unlikely to be an issue but, the road to self-employment still has many ‘potholes’ to navigate.

Developing your new business will obviously be your priority and as such, will likely consume much of your time and thinking but, you are entering an environment with no sick leave, no annual leave, no employer paid maternity leave so, a key component of your planning must also be directed at making sure you mitigate financial risk … and, the greatest risk is if you cannot work. 

What you need to focus on from a financial management perspective.

  • Build up an emergency fund.
  • Have a budget for your business and your household.
  • Manage cash flow – there may be good months and not so good months in terms of income.
  • Understand your tax and ACC liability so get good accounting advice from the get-go.
  • Meet with an adviser and complete a personal risk assessment.
  • Implement insurances that are appropriate for your circumstances – consider issues such as levels of household debt, are you the sole income earner – if not, could your household manage on a spouse’s income? In the event of death or illness what childcare requirements might you need to provision for – would these come at a cost, how realistic and sustainable are they long term? 
  • Business insurances may be an option so there is tax deductibility on premiums.
  • If you have insurances in place now, are they relevant to your changed circumstances?
  • KiwiSaver – a key tool to mitigate risk of insufficient funds in retirement.  You need to think about how you fund your Kiwisaver if you are now self-employed rather than PAYE.

Having options is one thing but, understanding all the permutations and implications can be daunting. At MFAS, we can declutter your thinking and help with the development of a financial strategy that will help at a time when you need it.