Do you feel like your boss is constantly telling you what to do? Do you have an idea for a business that you’re passionate about? Are you looking for a more flexible way to earn money that fits your lifestyle better?

The following are all valid reasons for going self-employed: being your own boss, setting your own hours, and having more control over your work-life balance. These advantages represent just some of the many benefits of working for yourself.

If you’re self-employed, you know that it’s not all good. There are some difficult aspects to running your own business, whether you’re a one-person operation or heading up a team of hundreds.

Although financial planning is difficult, it is important for anyone thinking of self-employment to do some serious financial planning. This will help prepare for eventualities, such as a business taking more time than expected to get off the ground, unexpected expenses, and not being paid promptly.

This list is for self-employed people who may need help with financial planning.

Here are some top financial planning tips for self-employed individuals, particularly newcomers preparing to go it alone.

1. Have Some Savings Behind You

The stress of running your own business is enough without adding any extra financial pressure. Having a savings account that you can easily access is a good idea for when your income is lower than expected.

You should have an emergency fund consisting of 3-6 months of your expenditure as a financial safety net. If you are self-employed, you should increase this to at least 12 months, to secure your financial health and stability in any challenging financial situation.

2. Try it as a Side Hustle First

It’s a good idea for self-employed people to keep some regular work, like a part-time job, so they have a dependable income while their business is getting started.

Many self-employed individuals invest in various financial products, such as stocks or bonds, that generate additional regular income streams to help stabilize their personal financial situation.

There are a number of financial products that can help you to reduce your tax liability and improve your financial security.

3. Learn to Budget for an Irregular Income

If you are accustomed to receiving a salary, it can be difficult to budget when your income fluctuates. You will need to be extra careful in monitoring your expenses and making sure you have enough money to cover them.

Make a budget that factors in your lowest monthly income to make sure your most important costs are always covered. Keep your treats for the months when you have more money.

When you are an independent entrepreneur, it is important to set up your earnings in a salary-like structure so that your budget is healthy.

4. Comprehensive Insurance is Crucial

If you are self-employed, every day you are unable to work is a day you do not get paid. If you have to take time off work, even for just one day, it can be a financial setback. If you have to take weeks or months off, the impact on your finances could be massive.

Since people have been getting sick and needing to pay for their living expenses for a long time, we have seen a huge decrease in savings.

It is very important for self-employed people to have a financial plan that includes money set aside for times when they cannot work because of illness or injury. You should have a general health insurance policy in addition to considering both critical illness and income protection.

A critical illness insurance policy will provide you with a lump sum payout if you become seriously ill with any of the illnesses that are listed on the policy.

This will help you to cover both additional expenses related to your illness and your day-to-day living costs, as well as keep your family life stable.

While you are unable to work, the former will pay you a percentage of your income.

5. Don’t Forget About Tax

Many small business owners have faced large tax bills that they have not been able to pay because they have not accounted for them.

A key element of running a successful business is having a realistic and well-researched plan for how much tax you will owe and when those payments are due. This will allow you to budget properly and avoid any nasty surprises or cash-flow problems down the road.

A self-employed person should get tax advice to ensure they understand their income tax liabilities and possible tax deductions.

6. Get an Accountant

Although it may feel like an unneeded expense, hiring an accountant or financial advisor can save you a lot of time and stress in the long run. DIYing your accounting can lead to many mistakes that a professional would be able to catch.

An accountant who is good at their job is very valuable. Guidance from a financial advisor can help self-employed people get a higher income tax return, as well as other tax benefits.

Advisors are familiar with the tax legislation in different regions and can help self-employed people make the most of deductions and other tax breaks.

7. Value Your Time

One of the hardest things new businesses face is setting rates or prices. Many people price their products and services too low in order to win clients quickly.

Don’t charge too little or too much for your product. Look closely at what you’re offering and make sure your rates are high enough to keep your business running.

It is not beneficial to make a lot of sales if the profit margin is not large enough to cover expenses and provide enough income.

8. Make Retirement Provision

Once you are self-employed, you won’t have an employee pension to pay into, and with all the bills to pay, it might be tempting to skip on making pension contributions and setting up a retirement plan or delay it until your personal finances feel more stable.

Don’t! You should start saving for your pension as early as possible, even if you can only afford to contribute a small amount each year. You can gradually increase your annual contributions over time.

You will benefit less from compound interest the longer you wait to start saving. Saving enough to stop working will become a harder task the longer you wait to start saving.

Self-employed people are not entitled to employer contributions, but they are still eligible for tax relief on their pension contributions.

Rob Williams, managing director of financial planning, retirement income, and wealth management at the Schwab Center for Financial Research, says the self-employed should put money away for retirement just like everyone else.

Rob suggests that even if you can’t save a lot of money, you should still save what you can. “The most important thing is to save regularly.”

If you’re self-employed or have income that varies greatly from month to month, this can be especially challenging. You can save for retirement by setting aside money from a financial windfall, like a work bonus or tax refund.

You could also treat your retirement like any other recurring expense by setting up a monthly automatic payment for a fixed amount.

“Rob says that employers spend a lot of time and effort helping their employees make financial decisions that will benefit them in the future, like enrolling them in the company 401(k) plan.” When you’re self-employed, it can be helpful to create ways to motivate yourself.

Four Retirement Plans for The Self Employed

There is a retirement plan available for both small-business owners and full-time freelancers that will fit their income goals.

You will need to consider the advantages and disadvantages of contribution limits, tax considerations, and employing others carefully, and then discuss the details with a tax professional, before you decide what is best for your circumstances.

Individual 401(k)

As the name implies, Individual 401(k)s work much like the 401(k) plans employers offer. Since the individual is both the employee and the employer, they can contribute more.

As an employee, you can put away a maximum of $19,500 a year into your retirement savings account. If you’re over age 50, you can put away an additional $6,500 per year (a so-called catch-up contribution).

You can contribute a maximum of $58,000 a year to your 401(k) plan, including both your own contribution (up to 25% of your salary) and your employer’s contribution.

If you are self-employed and working alone, an Individual 401(k) is generally the best option. If you set aside a limited amount for your workers’ retirement, your own retirement contributions are limited as well.


The setup and administration of a SIMPLE IRA is simple.

This is a way for a small-business owner to set up a retirement plan where they will match employee contributions dollar-for-dollar up to 3%. Instead of a flat percentage, you could make a 2% contribution to each employee earning at least $5,000 a year.

A SIMPLE IRA is a good choice for small businesses with up to 100 employees.

The employee contribution limit for a SIMPLE IRA is $13,500 a year, plus an additional $3,000 for those who are age 50 or over. There is a requirement to make annual contributions, and penalties for early withdrawals may be more severe than for 401(k)s or SEP IRAs.


An SEP IRA is easy to set up and has tax-advantaged contribution limit of 25% of your earnings, or $58,000 a year (20% if you’re self-employed).

If you don’t have money to contribute to a SEP IRA every year, that’s okay. You don’t have to contribute every year. If you are providing retirement benefits to employees through a SEP IRA, only the employer is allowed to contribute. There is no provision for employee contributions.

Personal Defined Benefit Plan

Although it may not be accurate to the time period, it is possible to set up a defined benefit pension plan.

This option costs more money for administrative costs and responsibilities, but can be helpful for older, self-employed workers who have a stable income and want to save a lot of money for retirement.

How much you contribute each year to your retirement fund is determined by how much you want to receive in benefits when you retire, which is capped at $230,000 per year. An actuary is hired to calculate these contributions based on your age and expected investment returns.

A Personal Defined Benefit Plan differs from an Individual 401(k) in that the former requires a set schedule of predetermined contributions instead of allowing the self-employed the flexibility to contribute more or less depending on their circumstances.

9. Insurance

If self-employed workers do not buy health insurance, the consequences can be very severe. People are less likely to consider disability or long-term-care coverage when making financial decisions.

According to Rob, the cost of disability insurance varies significantly depending on your profession, age and income. While an older surgeon’s income may be quite high, less experienced surgeons can be found for much more reasonable rates.

You also want to assess the benefits and drawbacks of either pre-tax or after-tax disability insurance premium payments.

If you own a business, you might want to get insurance that covers you in case someone sues you for something like hurting them or damaging their property.

If you own commercial property, you may want to get a Business Owner’s policy, which bundles together different insurance plans.

All of this coverage can add up. Although most business and health insurance premiums are tax-deductible, this does not guarantee that they are affordable.

If you are a self-employed worker who is 65 years old or older, you can get a tax deduction for Medicare and Medigap insurance up to your earned income. For more information, see IRS Publication 535.

About the Author Brian Richards

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