Advancements towards an automated digital economy have brought about innovation and entrepreneurship. This has led more people to start their own lines of business, remodel existing family-run businesses, or become part of the gig economy – in other words, self-employment is at an all-time high.
According to the 2020 Edition of the Comprehensive Labour Force Survey1, Singapore’s self-employed population has risen to 14.7% as of June 2020. Of this, 74% are in the prime of their lives in the 40-60 years demographic, 25% are above 60, and 9% below 30. For this workforce, ensuring financial robustness is paramount, especially because of the unpredictability associated with their income inflow.
From content creators and influencers, to business owners, while being self-employed can be highly rewarding, it comes with unique financial risks. Some of the biggest drawbacks faced by the self-employed as compared to those in the mainstream workforce, are the lack of predictable paycheques, CPF contributions or employee benefits.
The self-employed are entirely responsible for their own earnings and financial stability. That is why this category of individuals require a special perspective to ensure financial preparedness in the long run.
If you’re self-employed, here’s a quick guide to achieving financial discipline and ensuring your future remains financially secure:
CPF savings provide individuals with support during various stages of their lives, such as financing assets, and meeting healthcare or retirement expenses. Another benefit is the attractive interest rates levied on these funds2. Timely voluntary contributions towards the CPF can help self-employed individuals significantly improve their savings over time.
Self-employed people are strongly encouraged to create an effective budget to manage their savings better. Since income is irregular, it is advised to use your lowest monthly income as a benchmark to create a budget. Ensure that your budget can cover your regular expenses and bills. While it may be tough to allocate a fixed monthly amount towards investments, a budget that allows you to save for exigencies will enable you to think ahead in terms of future financial security.
Emergencies arise when we least expect them to. To avoid a situation where you end up digging deep into your pockets all at once, make a monthly habit of setting aside around 10% as part of your emergency fund, irrespective of whether your income is on the higher or lower end.
Protect your business with insurance. Some examples to consider include liability insurance coverage that compensates against claims in the event of injury or damage that your business might have accidentally caused. You might also look into business interruption insurance, which covers loss of profits in the event of business interruption due to incidences such as fire or damage to your office. Additionally, a property all risk insurance (a type of industrial property policy) will secure you against damage or loss to assets such as buildings, stocks, machinery, furniture and other contents. Other than insurance, there are many other financial plans and instruments that can be customised for your needs. A comprehensive needs analysis with an experienced financial consultant will be worth your while to explore.
Most young people fail to account for their retirement, thinking that’s a long time away. However, the lack of a retirement plan can lead to longer working years, especially with an uncertain inflow of money. Since self-employed people are at a higher risk of income instability, it is even more crucial to begin retirement planning early.
Speak to a financial consultant to create a robust portfolio that can help you manage your finances in the long run. Consulting an expert will allow you to keep your outflow on track, so that you can make optimal financial decisions, even during an economic downturn.
If you are a self-employed person, you have already taken charge of your professional life. It’s now time to take charge of creating a secure financial life. At SG Alliance, our qualified financial consultants have the professional expertise and experience to help you improve your financial health.
Connect with me to find out more about creating a strong financial portfolio, for yourself. Here’s to living life, on your own terms!
1Source: https://stats.mom.gov.sg/iMAS_PdfLibrary/mrsd_2020LabourForce_survey_findings.pdf
2Source: https://www.cpf.gov.sg/member/growing-your-savings/earning-higher-returns/earning-attractive-interest
