Tag Archives | self employed

How to Deal with Irregular Income

OLYMPUS DIGITAL CAMERAHow to Deal with Irregular Income

Being self employed comes with greater independence and flexibility of working hours but it can also mean an irregular income. Real estate agents, commission sales people, contractors, temporary or casual workers and a host of other occupations come into the same category as small business owners in this respect.

One of the fundamental principles of good financial management is to have a budget. The problem is, how can you budget when you don’t know what your income will be? A complicating factor is payment of taxes such as provisional tax, GST and PAYE. When cash is tight, it is tempting to spend everything that comes in and hope there will be enough on hand to pay tax when it is due.

Dealing with uncertain or irregular income requires a high level of skill in financial management. There is one key principle that is vital to success and that is separation of income into three components; business income, provision for tax and personal income. This separation needs to be done at the time income is received and requires different bank accounts to be set up. From your business income account, transfer a percentage of income received into a tax account each month and a fixed amount into a personal account either fortnightly or monthly. Personal income needs to be a fixed amount so a personal budget can be prepared with a certain income. It should be set at a level that is based on the average annual income. The business income account balance will fluctuate each month and if it builds up to a high amount, extra cash can be transferred into the personal account as a one-off payment. Managing money in this way requires discipline but will help avoid business failure or having to revert to working on a salary.

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5 Money Tips for the Self Employed

PlumbersVan5 Money Tips for the Self  Employed

Owning a business is a great way to build your wealth. Use these five money tips to make the most of your opportunity.


 Tip # 1 Join KiwiSaver

Being self employed doesn’t preclude you from joining KiwiSaver. If you are not a PAYE employee of your business, your contributions will be made directly to your chosen KiwiSaver provider. By contributing around $87 per month, you will be eligible for the kickstart of $1,000, an annual tax credit of $521 and other KiwiSaver benefits.

 Tip # 2 Have a financial safety net

A high percentage of new businesses fail within the first two years and at the other end of the spectrum, older businesses can fail due to changes in markets and technologies. Reduce your financial risk by holding some of your wealth outside your business. In the worst case scenario, you will have financial assets to rebuild from.

 Tip # 3 Separate business and personal money

One of the keys to successful business management is keeping a close eye on the cash flow and the performance of the business. Small business owners often make the mistake of mingling their business income and expenses with personal income and expenses, making it difficult to monitor performance.

 Tip # 4 Pay yourself a regular amount

To successfully manage your personal finances it helps to have certainty about what your income is. Paying yourself a fixed amount on a regular basis from your business will make this easier. Adjust the amount up or down after a period of time if your average business income changes.

 Tip # 5 Have an exit strategy

From the day you start your business, your plan should be to maximize the price it can be sold for. You will need a clear plan of how you are going to add value to the sale price and how or to whom it might be sold.

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Top Up or Miss Out

The end of June is an important date for KiwiSaver members. The financial year for KiwiSaver runs from 1 July 2009 to 30 June 2010 and if you have contributed at least $1,040 to KiwiSaver during that time, you will be eligible for the full amount of Government tax credit to be paid into your KiwiSaver account in July. The maximum value of the tax credit is the lesser of $1,040 or the total of your contributions for the year. If you have put in $900 through deductions from your pay, then your tax credit will only be $900. By putting an extra $140 into your account before the end of June you will get the full tax credit of $1,040.
If you are contributing 2% of your pay into KiwiSaver and you earn less than $52,000 a year, or if you are contributing 4% of your pay and you are earning less than $26,000 a year, you will need to top up your KiwiSaver account to get the full tax credit. To find out how much you need to top up your account by, check your contributions with either your product provider or your financial adviser.

If you are self employed or not working and under the age of 65, you can still become a KiwiSaver member by joining directly with the provider of your choice. By contributing $1,040 a year as a either a single payment or $84 a month you will get the full benefit of the tax credit. It is not too late to join now. New members will receive the Government kickstart payment of $1,000 and a tax credit for the first year based on the number of days of membership.

Get your payments in as soon as possible to allow time for processing!

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