Along with the freedom, flexibility and limitless opportunity that can come with being self-employed, there also comes greater responsibility. One of the most important yet overlooked responsibilities you have is the
responsibility to yourself to create a sound financial plan for your future.
Unlike employees of a company, self-employed individuals don’t have the luxury of sick days, group benefits and company pension plans. Those are things that you will have to put in place yourself. The good news is that with the guidance of a knowledgeable financial advisor, creating a financial plan is as easy as 1, 2 and 3:
Save at least 10 percent of your gross annual income for retirement. Ten percent is a general rule of thumb, but if you are a high-earner, you will need to set aside more if you wish to maintain your current lifestyle well into your retirement. The important thing is to start right away and be consistent.
Maximise your RRSP and TFSA contributions. Your financial advisor can help you make the most out of these two investment vehicles depending on your tax situation and long-term savings and retirement goals. Don’t have any contribution room left? Consider
universal life insurance.
Protect your income with insurance. If you’re self-employed and you can’t work due to an illness or accident, you don’t get paid time off unless you have your own insurance coverage. Disability and critical illness coverages will allow you and your business to stay afloat while you recover.
Save for vacation. Having your own business may be your dream come true, but your passion and drive to succeed may cause you to be “on the clock” 24/7.
Don’t underestimate the need for time off! Think about it this way: employees receive a minimum of four percent of their gross annual wages for vacation pay and many larger companies offer more than this government-mandated minimum. As your own boss, remember to set aside a portion of your income as vacation pay to ensure that you have the money and time for a well-deserved break at least once per year.
As your business grows, remember to review and revise your financial plan with your advisor’s help. If you don’t have an advisor,
click here to find one near you.