The Sunday Mail
Self-employment offers freedom and the opportunity to achieve your dreams, but this comes with a set of new responsibilities that even entrepreneurial-minded people can overlook.
When you become self-employed, you will have to play the roles of the employee and employer.
In the absence of a bona fide human resources department, you will be responsible for your own taxes, benefits and future.
If you want to work for yourself as a freelancer, independent contractor, or business owner, there are four key responsibilities of self-employment to consider first.
Buying health insurance
Although you may want to skip this expense if the costs of being your own boss are already high, health insurance is not something you can do without when you are self-employed.
\The risks of going deep into debt or even going bankrupt as a result of medical bills are too great.
Fortunately, there are several plans available in locations throughout the country, and you are likely to find at least one that fits into your budget.
Setting aside taxes
Taxation is another area where you are on your own when you become self-employed. You will generally have to pay these estimated taxes quarterly to the Zimra (Zimbabwe Revenue Authority ) — on time and in full — to avoid facing penalties when you file your tax return.
Enlist these tips to ensure sufficient, timely payments:
Treat taxes as an expense: Set aside money each month to cover your taxes.
Consider other taxes: Include State and local taxes, if they apply.
Keep records: Document your earnings and taxes in the event that you are audited.
Get help: Consider using an accountant for the first year you pay self-employment taxes.
Saving for retirement
As a self-employed individual, you won’t have retirement contributions automatically deducted from your pay cheque and directed to NSSA. It will be your role as a self-employed person to establish a retirement account and then put in place a plan to save for retirement. The earlier you start saving, the better.
You may also want to open a taxable brokerage account to increase your savings potential, but keep in mind that your investments can generate taxable dividends, and, when sold, taxable capital gains.
It is useful to talk to a financial advisor to learn exactly what you can do to make sure you save enough to reach your retirement goals.
Budgeting on a
variable income
You may find it more difficult to manage your money when you transition from a fixed, biweekly pay cheque to an irregular schedule of unpredictable payments.
It is even more important to use your money wisely when you are unsure of how much you will bring in each month.
The easiest way to ensure financial security in self-employment is to step into the role of an accountant and set up a basic budget.
You can create this monthly spending plan in a similar way as you would a budget on a fixed income.
The difference is that when listing your income, you should use the income from your lowest-earning month of the year as your baseline income.
Beyond establishing a budget, there are additional steps you can take to stretch your variable income:
Separate accounts: Open a business account to make it easier to keep your business expenses separate from your personal expenses.
Save aggressively: When business is booming, put as much money into savings as possible to help you weather a potential bust in the future.
Keep expenses flexible: Arrange your finances so that you can cut back on services when needed. For example, avoid contracts that you have to buy out in order to cancel.
Delay large purchases: If you have just begun working for yourself, you might want to delay buying a new home or car so that you do not have a huge payment hanging over your head.
If you budget carefully and save regularly, you should be able to survive the months when your income is lower than normal.
After you have been in business for some time, you may not need to be as conservative in your monthly spending. — The Balance (Online)
