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How to protect your income when you’re self-employed

Many self-employed people gain the benefits of higher income and greater flexibility. However some also have the prospect of little or no certainty of income or inconsistent earnings. Furthermore, being self-employed typically won’t come with annual leave, sick leave or a 9.5 percent superannuation contribution.  As with most things money oriented, more risk can often produce more return. However, you may want to consider how you can mitigate some of those risks and turn the tide to your favour.  There are two main ways that you can protect your income if you’re self-employed.  You can either outsource that risk to someone else, usually an insurance company, or self-insure.

Option 1: Insurance

The most obvious way to protect your income is to take out an insurance policy.  The most common is income protection insurance, which provides you with a personal income if you can’t work due to sickness or injury. Because you’re self-employed, an insurer may want you to prove your income and show that it’s consistent through your BAS or tax returns. If they’re not available or don’t accurately reflect the level of cover you need, bank statements and details of your assets and liabilities may be required.  You could also take out business expense insurance which provides your business with revenue if you can’t work.  This will be vital to your business if you need to hire someone to do your job while you can’t.

Option 2: Self-insure

If you can’t take out an insurance policy or choose not to, your other option is to self-insure.  This simply means that you’re putting sufficient funds away for unforeseen circumstances. Should you get sick or injured, no one else is going to pick up the bills while you’re not working. So in this instance you have to have funds available to do this. If you have sizable assets already, you may be close to being able to fully self-insure. If, however, you’re younger and haven’t built up your assets sufficiently to protect you in difficult times, you need to consider squirreling away a percentage of your earnings on a regular basis to give you a buffer.  As a business owner, this might be difficult as there will always be something to spend the money on which will often seem like a better use of those funds. However, should something happen to you and you don’t have funds set aside, you’ll be forced to take drastic action to keep things going.  This might include changing where you live or finding other ways to dramatically cut your costs. It could also mean the end of your business.

Keep in mind that part of the reason for being self-employed is to pursue something you’re passionate about while building up a stronger financial future for yourself.  That includes being strong enough to weather any storm that life can throw at you.

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Our response to limit the spread of COVID-19

  • As COVID-19 continues to spread, we would like to take a moment to let you know what Financial Spectrum is doing to respond.

    While we haven’t been directly affected with any confirmed cases, we are taking all reasonable precautions to remain safe.Our priorities are:

    1. Keep our staff and clients safe
    2. Stay fully operational in our service delivery and continuing to manage your financial affairs
    3. Play our part in minimising the impact on our community against the spread of COVID-19

    Financial Spectrum has the technology, infrastructure and systems to continue business as usual remotely and our staff will now be working from home.

  • You should notice no change to our service, with the exception that we are encouraging our clients to meet via video call, rather than face to face, unless requested. We will be contacting all clients with meetings booked over the next two weeks with instructions for a video call.This is an evolving situation and we will continue to monitor developments. We will keep you informed of any material changes to our approach.

    These are unprecedented times and we understand that many of you will be feeling unsettled about your finances. We would like to assure you that we are open for business and are here to help you. If you don’t have a meeting booked but would like one, or if you have questions, please contact us at info@financialspectrum.com.au or on
    02 8238 0888

Brenton Tong

Managing Director

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