Sole Traders - How And Why You Need To Start Contributing To Super
We're getting closer to the end of this financial year, which means it’s time to consider your self-employed super contributions.
Did you know that on average, the self-employed have lower superannuation balances than employees? And if you’re a self-employed woman, your super balance is around one-third lower than both female employees and the male self-employed!
Not paying your own superannuation is cheating yourself out of future earnings and lowering your own value in your business. Plus it can have a serious impact on your retirement down the track; you may have to work beyond the standard retiring age, or you might find it difficult to make ends meet once you do retire.
You can avoid this scenario by planning ahead. And the sooner you start planning, the more time you’ll have to grow your retirement fund. Here are a few tips to help you get started.
FIND THE RIGHT SUPER FUND
The first step toward starting a retirement fund as a sole trader is to open an account with a superannuation fund. You may already have one from previous jobs, and if you’re happy with it, you can continue on with that account.
But if you don’t have one or you would like to find something better, there are online comparison tools like SelectingSuper or CanStar that will let you compare the interest rates and benefits of different super accounts.
SET UP A DEDICATED BANK ACCOUNT
Budgeting can be hard for sole traders as it’s common for your income to fluctuate month to month. This can put you in a tough situation come tax time, when all of your bills are due at once. To avoid this, we recommend setting up a separate bank account dedicated to GST, income tax & superannuation, into which you transfer a portion of your income. This way when it’s time to make your contributions to super, tax & GST, you already have the money set aside.
Once you have paid your annual tax obligation, if you have a significant balance in your dedicated account, you may like to consider transferring this balance into super as a top-up amount (if it’s not required for business development). Alternatively, you can set up an automatic ongoing monthly contribution to your super.
CONSOLIDATE YOUR SUPER INTO ONE FUND
As we mentioned earlier, if you have previously been employed, you may still have multiple active super funds. Once you’ve selected the fund you wish to continue with, you should consolidate all other balances to it so you aren’t paying fees and admin charges on multiple accounts.
ASSESS YOUR INCOME, EXPENSES & CASH FLOW
If you can’t afford to pay yourself superannuation of at least 10% of your earnings, ask yourself why not?
It may be time to delve deep into your current income, expenses & cash flow to see where your money is going. You should then create yourself a budget that includes savings for your super. It’s also handy to note that if you make a super contribution before the end of the financial year (30th June), you can receive a tax deduction.
GET ADVICE FROM RELEVANT PROFESSIONALS
As a sole trader specialising in your own industry, it can be easy to forget about super. You’re focused on running your business, and when money is tight, you may simply not believe that you can afford to put any of your funds into a super account.
Working with an accountant & Financial planner can help you to get a better understanding of your finances, and set you up with super contributions that are going to help you in the long run.
If you need any further assistance in planning for super, you can book a free consultation with us.