6 Things To Note Before Choosing Self-Employment
What is it really like being your own boss?
According to the IRAS, a self employed person performs work for others (e.g. provide a service) under a contract for service.
As a self-employed with your own business, you work for yourself and you are in the position to realise a business profit or loss. Your income is derived from the buying and selling of goods, or from providing professional or personal services.
Business owners, independent contractors, accountants, financial advisers, insurance agents, among many other professionals are commonly self-employed.
So what do you need to know when it comes to self employment?
Self-employment sounds like freedom and the opportunity to achieve your dreams, but there are certain responsibilities that should be considered before diving head first.
Budgeting on a fluctuating income
As with all self-employed persons, you will not be drawing a fixed income. It is important that you take the necessary steps to budget and save money for days where sales are slow.
Beyond establishing a budget, here are other steps to take to stretch variable income:
Separate accounts: Open a business account and keep business expenditure separate from your personal expenses.
Savings: When business is booming, put as much money into savings as possible to help you weather rainy days
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've just begun working for yourself, you might want to delay buying a new home or car so that you don't have a huge payment hanging over your head.
By budgeting and maintaining a consistent saving habit, it will be less harsh surviving the months when your income is lower than normal. After you've been in business for some time, you may not need to be as conservative in your monthly spending.
2. Taxes
All self-employed persons must report the income earned from their business operations as business income, and not as salary.
Self-emplyed persons are people who earn a living by carrying on a trade, business, profession or vocation. Generally, sole-proprietors and partners registered with the Accounting and Corporate Regulatory Authority (ACRA) are self-employed.
When doing your taxes, you need to:
Decide on the accounting period
Proper bookkeeping
Statement of accounts
4 line statement
Income tax
Pay withholding tax
For more detailed guides and explanations, check out the IRAS website
3. CPF Contributions
There are 2 CPF contribution schemes relating to self-employed:
Mandatory contributions to your MediSave Account (MA)
The Government mandates that all self-employed personnel have to contribute to their MediSave Account as long as they earn more than $6,000 in Net Trade Income (NTI) for the year. For many self-employed people, this means they will have to contribute as much as their employed peers.
Voluntary CPF contributions
Any Voluntary CPF contributions made to CPF by the self-employed have to be allocated across all 3 CPF accounts, namely CPF Ordinary Account (OA), Special Account (SA) and MA. The allocation ratios are the same as for employed CPF members.
Edowus has written a pretty comprehensive article detailing this, check it out here
4. Mentorship
In a typical work environment, people usually have a manager that they report directly to who can provide guidance, mentorship, and coaching. However, when you’re self-employed, you need to actively look for this sort of support. You may be working gor you, but developing your skills should take precedence to help you grow and evolve in your career.
Look for a mentor by networking with people, who have experience you want to learn from (and who you may be able to offer valuable insight from as well). LinkedIn is fantastic for this and you’d be surprised at how many people are willing to mentor you. Before approaching a potential mentor for advice, get explicitly clear on your goals and what you hope to gain from mentorship.
5. Administrative Tasks
Depending on your personality type, you either love or hate processes. The truth is, processes help keep a better record and automate certain tasks, so eveloping standard processes can help you work smarter, better, and faster.
Implement a CRM — A customer relationship management platform (CRM) can help keep track of client information. You can use a CRM to manage all client communication without having to manually track correspondence from a spreadsheet or your inbox.
Inquiries process — Including a specific email inbox where inquiries end up can prevent them from getting lost, allowing you to batch responses easier. Or, you could set up a "work with me" page on your website, having a web form specifically for project inquiries so people can get in touch with you directly for work.
If you’re looking for a more long-term solution or support for a specific project, bringing on a contracted virtual assistant can be an affordable way to delegate administrative tasks.
6. Self Care
People tend to neglect this one when grinding and hustling because they are so fixated on their tangible goals. Remember why you are choosing the self-employed life, ultimately, you want to not be a slave to the dollar and live life on your terms, right?
Self-employment takes stamina, and self-care can help you keep up.
Get enough rest
Prioritise your friends and loved ones
Maintain a balanced diet
Incorporate regular exercise
Check in with yourself and be intentional with your actions
Becoming a self-employed person may not be for everyone, but it sure is rewarding when you manage to succeed on your own terms.
Interested in creating your own employment opportunities? Get in touch with us today.
