When you strike out on your own, making regular super contributions can be difficult to justify – especially when retirement is seemingly such a long way away. But, Caleb Dozzi of Brisbane-based dozzi Financial Advice says, failing to budget for super is not just a mistake but a missed opportunity – for all ages.
“A lot of people think super is optional but that’s not looking at the real cost of doing business,” he says. It’s also the most tax-efficient way to build long-term wealth.
Yet, the stats show that if you’re self-employed you’re likely to have an under-baked nest egg come the end of your career. Nearly 10% of the workforce is self-employed, but almost one quarter has no superannuation, and those who do are seriously lagging behind. Only 27% of self-employed people in their 60s have more than $100,000 in super compared with 50% of employees who receive the Superannuation Guarantee (SG).1
You don’t want to be one of the statistics, right? You want to live the dream now and later in life. Here’s five tips to make sure you’re building up your superannuation fund while being your own boss:
1. Make super part of your business plan
Before you start a business, it’s important to model your future cash flows, taking into account estimated business income, expenses, your living costs and whether you can afford super on those projections.
“If you’re not contributing to super from day one, then you need a plan for when and how you will incorporate super into your cash flows in future,” says Dozzi.
If you’re incorporated and employed by your own business you’re required to pay yourself the SG, which is currently 9.5% of your employment income. If you’re a sole trader or partner, it’s optional but that doesn’t mean you shouldn’t.
2. Pay yourself first
When Marisa Wikramanayake was ready to enter the workforce in 2008 it was at the height of the GFC. She couldn’t secure a full-time job, so started to freelance and has been a freelance writer ever since.
“It took a long time to get enough income that was not just sufficient for rent but also to put some aside for savings and super,” she says. It wasn’t until last year that she started to think seriously about super.
“I set up a direct debit of $20 a week. I also set up a direct debit of $100 a month into a high interest savings account,” she says. “After I build that up I’ll probably transfer more into super.”
Dozzi agrees that if you receive regular income the best way to funnel money into your super is to set up a direct debit from your bank account aligned with your pay cycle. Otherwise the temptation is to spend the money on yourself or your business.
If your income is lumpy or irregular, you might prefer to transfer part of each payment into super. Alternatively, you can transfer it into a separate bank account and tip it into super quarterly or annually.
All that’s left to do then is decide which super investment option best fits your age, risk tolerance and values, and whether to make your contribution before or after-tax.