Living life as a self-employed person (SEP) comes with the perks of flexibility and freedom, but you could also be dealing with irregular streams of income — perhaps more so with the recent COVID-19 situation. Here are four tips to help you balance your finances as an SEP, for your current and future needs.
Cover your healthcare needs with your MediSave savings
Your MediSave Account (MA), which earns attractive interest rates of up to 5% p.a.*, helps you set aside savings for future healthcare expenses. As an SEP, you do not receive CPF contributions from an employer, so making your own MediSave contributions can help to ensure that you have sufficient savings in your MA!
After you file your Net Trade Income annually, you’ll receive notice from IRAS about your MediSave payable for the year, which you will need to contribute to your MA. You can also plan ahead and set aside savings for your MA contribution by using the Self-Employed MediSave Contribution Calculator!
Equip yourself with knowledge about the uses of MediSave, so that you can benefit from it.
Read: Learn the 9 uses of MediSave.
Grow your savings for the future with CPF
As SEPs are not required to make monthly CPF contributions, it’s imperative for you to plan and actively save for your future needs on your own. If saving for the future feels challenging, you can consider leveraging the attractive interest rates of your CPF accounts to grow your savings!
There are two types of voluntary contributions — you can contribute either to your MA only, or to all three of your CPF accounts.
When you make voluntary contributions to all three of your CPF accounts, you can earn attractive interest rates of up to 3.5% p.a.* in your Ordinary Account (primarily for housing needs), and up to 5% p.a.* in your MA (for healthcare needs) and your Special Account (for retirement needs).
The portion that goes to the MA will offset your MediSave payable as an SEP. You can also enjoy tax relief for your voluntary contributions!
If you want to grow your savings with CPF, include voluntary contributions in your budget and save the amount in your CPF each month, instead of waiting till the end of the year. This way, you’ll be able to earn more interest.
Take your business up a notch through government-subsidised courses
Tap on government grants to upgrade your skills at a lower cost. For example, if you’re 25 and above, you would have received $500 worth of SkillsFuture Credit. This can be used to take a wide variety of courses from business management to graphic design.
The Self-Employed Training Support Scheme (STSS) was introduced recently to encourage SEPs to upskill with approved SkillsFuture Series courses or sector-specific training programmes during this period. Under STSS, you can receive a training allowance of $7.50 per hour for courses that commenced between 1 and 30 April 2020, and $10 per hour for courses that commence between 1 May and 31 December 2020.
If you’re 35 and above and earn a gross monthly income of less than $2,000, you can also receive up to 95% course fee funding on certain courses, training allowances and completion rewards, under the Workfare Training Support (WTS) Scheme.
Ease the load with the Self-Employed Person Income Relief Scheme (SIRS)
To help you tide over this challenging period, the Government introduced the Self-Employed Person Income Relief Scheme (SIRS), where eligible SEPs (subject to SIRS qualifying criteria) will receive three quarterly cash payouts of $3,000 each.
If you are receiving the SIRS payouts, it may be wise to set up a budget for it, so that you can make good use of the funds. For example, you can set aside a third of it for essential spending, such as food and bills. The remaining amount can be put away as an emergency fund or savings for future needs.
Striking out on your own is rewarding, but it may not be the easiest path to take when it comes to managing your finances. By keeping these money habits in mind and tapping on available government resources, you’ll be able to journey through it with more ease.
Learn more about SIRS here.
*Includes extra interest. Members who are below 55 years old are paid an extra interest of 1% p.a. on the first $60,000 of their combined balances (capped at $20,000 for OA). Members who are 55 years old and above are paid an extra interest of 2% p.a. on the first $30,000 and 1% per annum on the next $30,000 of the combined balances (capped at $20,000 for OA).
Last updated on 15/6/2020.